I have a client who has a food stall in an eatery. (For anyone who doesn’t know, multiple food venders/stalls around the edge of a big hall, communal seating in the middle. It’s order & pay at the stalls, communal waiters on landlord’s payroll take food & collect dirties).
My client is charged by the landlord for a number of things on the same invoice each month; base rent, turnover rent, service charge, utilities. All of these are a set % of what they call ‘relevant turnover’. This invoice numberical defines relevant turnover as sales (net of vat) less 2% ‘staff performance charge’(SPC). It is well known at the venue that this SPC came into existence because the waiting staff did not receive any tips. It is the understanding of my client and the other ‘tenants’ that this SPC is the waiters’ tip and added to their payslips as such.
Thats all fine, but the landlord is charging VAT on the SPC. ie invoice is base rent + turnover rent + service charge + utilities + SPC = subtotal, then they add VAT to the whole amount.
1. If the SPC is a tip, should the landlord be charging VAT?
2. Is my client overdeclaring their own output vat by using the full cash income as vat able sales, rather than deducting the 2% tip first. Remember, that is what the landlords do to calculate the relevant turnover to do all of their charges.