Vat Cut......fiddling While Rome Burns

[Normal]

no, the price is £24.99.

the amount owed to the inland revenue will either be 17.5% or 15% of £24.99. the restaurant can pocket the difference.

14.89% or 13.04% respectively, not 17.5% or 15%....

£24.99, meal costs £21.27. VAT @ 17.5% = £3.72.

£3.72 is 14.9% of £24.99.

No wonder the country is in such a mess...

[gf3]

If the price of carrots went down by 20% I would not be asking for a reduction on the price of my meal

[Mr Yogi]

the restaurant can set whatever price he wants, the tax rate is irrelevant. tax could be 0% and he can still charge you £24.99.

Exactly.

I used to be registered for VAT. I now trade under the registration threshold and so don't have to charge VAT to my customers.

My retail prices however, have remained exactly exactly the same. This is worth an extra £130 a week to me.

All above board and legal.

Edited November 23, 2008 by Mr Yogi

[mfp123]

14.89% or 13.04% respectively, not 17.5% or 15%....

£24.99, meal costs £21.27. VAT @ 17.5% = £3.72.

£3.72 is 14.9% of £24.99.

No wonder the country is in such a mess...

and the award for the anally retentive goes to.....

[Normal]

and the award for the anally retentive goes to.....

People are quibbling over 2.1% yet when I point out the maths is 2% out I get called anally retentive. Oh the irony.

[Bloo Loo]

If the price of carrots went down by 20% I would not be asking for a reduction on the price of my meal

Niether would I, but the principal is you pay for a service+VAT.

If the VAT is reduced then you are entitled to a reduction.

My business, being non consumer, quotes prices Ex VAT, so the client will pay whatever the ruling rate is. Same as the restaurant.

[dr ray]

My wife and I have a restaurant business which is suffering badly at the moment. Things were challenging (mainly due to food price increases) but surprisingly busy until August, and we were pleased to be turning over the same as last year until we got to September when business dropped off dramatically (25% reduction in turnover almost overnight). We are trying to sell tables for Christmas parties at the moment, which is an uphill struggle anyway as companies have been cutting back over the last couple of years.

Our 3 course Christmas dinner is at £24.95 and I am not going to be changing it to £24.42 as a result of tomorrows big VAT giveaway. We are already doing much more serious offers than that anyway to try and tempt in the petrified public. Does Gordo really think that my customers or any other businesses customers are going to get excited by a discount of 2.1% when prices for almost everything are being slashed by desperate retailers?

My sympathies for anyone trying to run a business in the UK.

I think the whole VAT publicity is a smoke screen. All the papers and news report were about the "Tax Giveaway" or the "Christmas Present to Shoppers" today. Obviously they are acting as propaganda mouthpieces for NuLabour. As you say the reduction in the amount they take off us is negligible and temporary but it has successfully stifled debate over the savage and permanent increases in Tax we are likely to see.

The scope for reducing VAT is limited to 15% by Europe (ie Europe decides our Taxation rules now) but not for restaurants. I gather restaurant VAT is only 5% in France so you could get a bigger reduction.

I actually took the family out for a meal today which is unusual for me but I appreciate not having to book or wait for a table or made to look like a cheapskate for not ordering a bottle of wine at 5x what I pay in Tesco. To add to the day we went to look at a new build flat in the middle of the city as they were having an open day and I thought I might get a coffee.

I was amazed to find the actual builder and estate agent themselves there on a Sunday showing people around. No other sales staff or receptionists. No coffee either. They started off BSing me about how well they were selling and acting rather distainfully. The agent spent time showing me how the lights could be programmed to dim and the shower turned on remotely (as if I cared) but when he realised I was in a position to buy without borrowing he virtually blubbered out that they need to sell one of the flats before Xmas and could give a very good deal. Most of the flats are nearing completion and I presume they have run out of money and can't afford to finish the development. As I left I caught a hint of desparation and pleading in his eyes.

[the end is a bit nigher]

If I were still in consultancy, it wouldn't make any difference. Inputs and outputs are largely self-cancelling, and would be at any percentage rate. I expect this will true in any fee based business.

VAT often falls due before you have received payments, which seriously impacts cash flow. If you need an overdraft to pay the VAT, it actually costs a lot of money to collect it.

As a small business, VAT accounting and being an unpaid tax collector is simply a pain in the butt.

i'm on the flat rate VAT scheme

unless i'm very much mistaken, this means more paper shuffling and less margin

'help for small businesses'. he could help by f*cking off

Many on a fixed rate scheme will be worse off. I pay VAT at 13% of my VAT inclusive turnover. My VAT inclusive turnover is about to fall by 2.5/117.5. Unless the 13% falls too I will pay proportionately more.

[Mr Yogi]

My business, being non consumer, quotes prices Ex VAT, so the client will pay whatever the ruling rate is. Same as the restaurant.

You're missing the point.

B2B businesses quote nett prices, before VAT is applied.

Retail businesses however, quote VAT inclusive prices. There is asolutely no onus on a restaurant to pass on any reduction in the VAT rate. They are perfectly entitled to increase their margins instead.

A business can charge whatever they like. It is up to their customers to decide whether they want to pay it.

[Bloo Loo]

You're missing the point.

B2B businesses quote nett prices, before VAT is applied.

Retail businesses however, quote VAT inclusive prices. There is asolutely no onus on a restaurant to pass on any reduction in the VAT rate. They are perfectly entitled to increase their margins instead.

A business can charge whatever they like. It is up to their customers to decide whether they want to pay it.

Sure they are, its technical and you've quoted a VAT inclusive price, so you should pass the new tax on and not charge the old, but I doubt anyone is going to give the discount on everyday goods.

My case is for a preordered CHristmas dinner for example, and the VAT rate changes. Just me being a pedant.

[Hip to be bear]

did you never make enough to put a bit by for a down turn...? every one knows in good times you put a bit by for the bad times...or is this not the case any more.

Valid point but we bought the business 2 years ago and have reinvested most of the profits to modernise, upgrade and carry out repairs. It is a daunting prospect entering such difficult times without a big fighting fund.

[miko]

Fantastic 2.5% cut in v.a.t. , what a load of cr-p , for anyone who has to travel by train to work it won't even cover the minimum fare rise of 6% coming into affect in January.

[Saberu]

Sure they are, its technical and you've quoted a VAT inclusive price, so you should pass the new tax on and not charge the old, but I doubt anyone is going to give the discount on everyday goods.

My case is for a preordered CHristmas dinner for example, and the VAT rate changes. Just me being a pedant.

I don't think it makes a difference to be honest, you have a contract with the restaurant saying you will buy the meal at a set price regardless of how their tax changes. I'm no expert but I always looked at it like the business pays the tax and the customer pays the business (which is a matter of fact of what happens), as long as the business doesn't charge too little VAT on the product then they aren't breaking any laws.

VAT is a difficult tax to avoid because it's priced into the end product. Unlike tax on profits which can almost completely be avoided with no risk by any business that buys from abroad, all they have to do is setup an offshore bank account in a place which can't be checked and as most clothes retailers buy their products from India and China they most likely just have a bank account in these countries (not with an international bank) then pretend they are paying a lot more for the goods from the supplier.

Example, company buys a t-shirt for 25p (wholesale price) from India, it then sells it on for (£10+ VAT) so £11.50 in the shops. It then takes it's overheads off the profit, let's say £3 but it will tell HMRC that it bought the t-shirt from India for £5, making almost a £2 profit which would be seen as normal (20% profit) from HMRC's perspective of what a retailers profit would be for selling something like that.

This means £4.75 out of the total £6.75 profit will be completely tax free. That represents a 70% tax free profit. That's one way of dealing with profit, the other method is to invent costs that don't exist, buy things at prices which are higher than they really are (then pocket the difference) or just spend money needlessly on new things in order to push business costs up and tax on profit down. This is why many businesses rely on overdrafts to stay afloat as they operate as tight a visible margin as they can.

If anyone thinks this doesn't happen on a wide scale they are being naive. This practice will be proliferant amonst small and medium sized businesses and perhaps a handful of large ones, there are a lot of large companies that do play by the rules ofcourse as it's more difficult to tax avoid on a larger scale. And before anyone asks no I don't do this myself, it's just my insight into how companies are probably hiding their profits.

[ursus darling]

News at 10 were quoting some prices of white goods now that the VAT reduction (17.5% now reverting back to 15%) is kicking in.

The reporter said that a toaster that cost £150 will now only cost just over £146 (£145.25)

Am I the only one who thinks that £146.25 is an incredible price to pay for a toaster?

I didn't MEW or get into debt during the past 10 years. Did people really pay that sort of money for toasters and do news at 10 think that people will look at a £150 toaster being reduced £4 will stimulate spending in the high street?

For the first time, I genuinely feel old and out of touch.

[neiloxford]

Seems like some people here don't get it...This is big if this happens

This is the calculation I will be doing at my work tomorrow for my boss...or along the lines of this...

Annual Turnover ____________________________£1,000,000,000

2.1% increase in margin________________________£21,000,000

Equivalent Number of Full Time employees at 25k____________840

That is an aweful lot of jobs saved....believe me...this approach makes a difference right now....if true

[MarkNewby]

*falls over*

£150... for a toaster.

http://www.verynice2.com/dualit-combi-2-1-...-pink-31211.php

Does it make cups of coffee for you too? Nope, you need one of these to do that:

http://www.goldstriker.co.uk/personalgifts...feemachine.html

[brassed off brit]

Our 3 course Christmas dinner is at £24.95 and I am not going to be changing it to £24.42 as a result of tomorrows big VAT giveaway. We are already doing much more serious offers than that anyway to try and tempt in the petrified public. Does Gordo really think that my customers or any other businesses customers are going to get excited by a discount of 2.1% when prices for almost everything are being slashed by desperate retailers?

£25 for a three course meal on crimbo day!!! move to northumberland mate, I'll be there with wifw and two kids, thats cheap as chips.

[SNACR]

Example, company buys a t-shirt for 25p (wholesale price) from India, it then sells it on for (£10+ VAT) so £11.50 in the shops. It then takes it's overheads off the profit, let's say £3 but it will tell HMRC that it bought the t-shirt from India for £5, making almost a £2 profit which would be seen as normal (20% profit) from HMRC's perspective of what a retailers profit would be for selling something like that.

This means £4.75 out of the total £6.75 profit will be completely tax free. That represents a 70% tax free profit. That's one way of dealing with profit, the other method is to invent costs that don't exist, buy things at prices which are higher than they really are (then pocket the difference) or just spend money needlessly on new things in order to push business costs up and tax on profit down. This is why many businesses rely on overdrafts to stay afloat as they operate as tight a visible margin as they can.

If anyone thinks this doesn't happen on a wide scale they are being naive. This practice will be proliferant amonst small and medium sized businesses and perhaps a handful of large ones, there are a lot of large companies that do play by the rules ofcourse as it's more difficult to tax avoid on a larger scale. And before anyone asks no I don't do this myself, it's just my insight into how companies are probably hiding their profits.

In fairness to SMEs one advantage they've got over bigger players is their ability to hustle. A restaurant owner-manager can't become a tax exile in Monaco and would be difficult to benefit from many of the more sophisticated tax avoidvance schemes the big players use (was a very widespread one with credit card processing transaction fees recently that would only be possible for the very large). Personally don't have too much of a problem with it. HMRC won't be able to collect masses of tax in the coming years and will have to be written off, some of the hardest working might as well get some added on to the pile.

HMRC's models for margins in industry sectors are certainly very out of date. Best to try and conform as closely to average as possible even if you're making more margin. Paying above average tax would probably also flag you up for investigation.

___________

Comments about a having a warchest to fight the downturn are silly and ill-informed I suspect by people confusing how they run their personal finances with what is a tenable and efficient way to run business finances. A lot of businesses do genuinely reinvest any spare cash available not just for tax efficiency, but because they have pride in their business.

Just how big should a warchest have been to fight the current downturn?

You could live like a monk and stuff loads away only to find you're still p**sing in the wind and provided yourself with an extra six months of zero income slavery.

[Jadoube]

Comments about a having a warchest to fight the downturn are silly and ill-informed I suspect by people confusing how they run their personal finances with what is a tenable and efficient way to run business finances. A lot of businesses do genuinely reinvest any spare cash available not just for tax efficiency, but because they have pride in their business.

True.

The other side of the coin is you don't winge when the going gets tough - you do what it takes to keep the business going. ( Using all the effective, proud, reinvestment.) Or you fold - and let your better competitors serve your customers.

[ChumpusRex]

*falls over*

£150... for a toaster.

http://www.verynice2.com/dualit-combi-2-1-...-pink-31211.php

The hilarious thing about these dualit toasters is that they're crap. The £20 ones from argos are so much better and more reliable, it's staggering.

We had a couple at school (6 slice models), on the basis that it was more efficient to buy 6 slice toasters.

The problems were astonishing. The lever lift design is a massive problem - in a normal toaster, the toast is lifted straight up. In these, the toast is pushed up at an angle by one corner - if the toast isn't fully toasted, it won't lift, and will instead crunch up, get pushed into the heating elements where it will catch fire and destroy the elements.

The clockwork timers were a problem as well, they would constantly jam and the toasters would just stay on until you manuallly turned it off - unlike the thermostatically controlled toast eject mechanism in other toasters. We had several fires as a result of this.

Other problems, the handle to lift the toast out gets so hot during use, that the plastic knob melts off. The outer surface of the toaster got much hotter than normal toasters - so hot that it could causes severe burns if you happened to brush up against it, and would melt plastic bags and plastic crockery in seconds.

[dr ray]

Seems like some people here don't get it...This is big if this happens

This is the calculation I will be doing at my work tomorrow for my boss...or along the lines of this...

Annual Turnover ____________________________£1,000,000,000

2.1% increase in margin________________________£21,000,000

Equivalent Number of Full Time employees at 25k____________840

That is an aweful lot of jobs saved....believe me...this approach makes a difference right now....if true

I'm no accountant-not even good at maths but are you not counting the entire turnover as profit here and then showing the effect of 2.1% increase in profit?

Surely your margin will be maybe 10% of turnover and your increase in margin is 2.1 % of that - £21,000

[SNACR]

True.

The other side of the coin is you don't winge when the going gets tough - you do what it takes to keep the business going. ( Using all the effective, proud, reinvestment.) Or you fold - and let your better competitors serve your customers.

I take the point. I broadly agree unviable businesses shouldn't be kept alive and new ones allowed to replace them. The problem is at the moment if big things fall they'll be a lot of collateral damage. Woolworths go. Great news if you're one of the timy amount of independent toy shops still scraping by. But will they be able to survive long enough to reap the harvest, things would get worse before they get better as Woolies entire toy inventory is knocked out at giveaway prices and parents stock up on xmas presents for next year. It may not be the case that there's always a fitter, leaner competitor to step into the void left behind. I suspect many perfectly viable businesses will fail.

The situation at the moment isn't some sticky patch that a bit of ingenuity and elbow grease can see you through like a new competitor opening in town or the road you're on being closed for a few months to have new water mains put in. Things are clearly truly exceptional. Do you think the govt would be lopping 2.5% of vat if they weren't?

[Hip to be bear]

"The real problem for us and many other small businesses will be finding the £8,000 that we will owe to HMRC on the 31st of January after a miserable quarter of trading" .

Do you not already have the funds available to pay the VAT to the guvment ?

Showing my ignorance but I would have thought a restaurant would have taken the VAT from the customer at the point of sale , less what is reclaimable from supplier's vat invoices .

Is that not how it works these days (genuine question) ?

Yes it is. I have the money in our current account, and we have to do a quarterly VAT calculation and pay by the end of the first month in the next quarter. In basic terms we calculate how much VAT we have collected, subtract from that amount the VAT we have paid on our purchases (mainly on booze as most foods are exempt) and send a cheque off to to the revenue.

There are funds coming out of the account every month to pay for fixed costs such as water, power, insurance, bank loan, salaried staff etc, as well as more variable costs such as food and casual staff. If margins are lowered and turnover drops suddenly the amount of cash in your account diminishes. You can reduce some of your costs, but not all to improve your cashflow,until you have to start making decisions like who to pay first out of VAT, rent, staff and suppliers. VAT and staff have to come first. The writing would be on the wall when suppliers lose confidence and request cash on delivery. The problem with VAT and rent is that they are large payments due on a particular date quarterly. THe penalties for late / non payment of VAT are punitive.

My main point is that many small businesses will be pushed over the edge by a large VAT bill that they cannot pay, and HMRC will not be saying 'Don't worry, you can pay us later as we know that things are tough out there'.

For all his bailouts of banks so that they can keep lending and talk of wanting to help small businesses, the expected 2.5% is Gordon pissing in the wind, and the failure of banks to offer overdrafts to their small business customers combined with what I anticipate will be a hardline approach by HMRC to their collection of VAT in the coming months will lead to many small businesses failing in the new year. I am doing everything that i can to try to prevent mine being one of them.

HPC CHRISTMAS PARTY AT MY PLACE, and I will even drop the price by 2.2% for you all!!!!

[SNACR]

Yes it is. I have the money in our current account, and we have to do a quarterly VAT calculation and pay by the end of the first month in the next quarter. In basic terms we calculate how much VAT we have collected, subtract from that amount the VAT we have paid on our purchases (mainly on booze as most foods are exempt) and send a cheque off to to the revenue.

There are funds coming out of the account every month to pay for fixed costs such as water, power, insurance, bank loan, salaried staff etc, as well as more variable costs such as food and casual staff. If margins are lowered and turnover drops suddenly the amount of cash in your account diminishes. You can reduce some of your costs, but not all to improve your cashflow,until you have to start making decisions like who to pay first out of VAT, rent, staff and suppliers. VAT and staff have to come first. The writing would be on the wall when suppliers lose confidence and request cash on delivery. The problem with VAT and rent is that they are large payments due on a particular date quarterly. THe penalties for late / non payment of VAT are punitive.

My main point is that many small businesses will be pushed over the edge by a large VAT bill that they cannot pay, and HMRC will not be saying 'Don't worry, you can pay us later as we know that things are tough out there'.

For all his bailouts of banks so that they can keep lending and talk of wanting to help small businesses, the expected 2.5% is Gordon pissing in the wind, and the failure of banks to offer overdrafts to their small business customers combined with what I anticipate will be a hardline approach by HMRC to their collection of VAT in the coming months will lead to many small businesses failing in the new year. I am doing everything that i can to try to prevent mine being one of them.

HPC CHRISTMAS PARTY AT MY PLACE, and I will even drop the price by 2.2% for you all!!!!

Straight from tomorrow's Times:

'Revenue & Customs is to be told to give small companies extra time to pay their national insurance, VAT and corporation tax bills if they have cash-flow difficulties.'

For what it's worth my advice would be to negotiate with your LL to pay rent monthly or even weekly. Trust me, they really, really won't want the premises back. I would definitely pay wages as number one priority if their pay starts coming through a few days late they might start 'borrowing' from you. Even with above would still pay vat on time to avoid surcharge and fines. PAYE/Nat Ins, self assess/corp tax definitely the ones to take the p*ss on.

If it's any comfort many, many large and small are in the same boat, hence the vat cut.

[tuggybear]

You lot are being far to complex! ( think Government thinking )

Deflation will devalue many products and Government will take credit for it, thanks to their VAT reduction scheme !

YES PEOPLE ARE THAT STUPID!