New restaurant business, register for VAT or not?

JohnD_68

Hello all.

I am newly self employed as a sole trader and I am starting a restaurant business.

I am opening next week and expect my monthly sales to be in the region of £6,000 to £8,000 (so projected first year sales of £72-£96K)

I was considering registering voluntarily for VAT but obviously the chances of getting a VAT number within a week are pretty slim I think.

My start up costs have been minimal and my major ongoing costs will mainly be VAT zero rated (food).

Do I have to register for VAT now?

If I don't register for VAT now, my current menu prices will obviously not include any VAT. So sale of an item costing £12 will show in my accounts as income of £12.

If say in month 10 I hit the registration threshold (say based on higher than expected average monthly sales of £9,000) or even decide to voluntarily register say in month 3, can I keep my menu prices the same (to then include VAT), so an item priced at £12 would then show in the accounts as income of £10 and the VAT collected as £2?

Would sales prior to VAT registration be retrospectively subject to VAT or is it only sales from the actual registration date?

Is there anything wrong with the way I am looking at this?

Any thoughts would be greatly appreciated, thank you in advance.

paddyrg

https://www.gov.uk/vat-registration/when-to-register

hope this helps

Marktheshark

No disrespect intended but if you have to ask this on a forum I would get your business plan checked by someone with accounting experience in the catering trade.

It would be quite unusual to make any profit in year one of a new restaurant, it would be beyond foolish to enter the trade as a sole trader unless you do not own any property or assets.
An accountant would be better placed to advise you on this and the VAT.

Pennywise

Another aspect is how much VATable expenses you'll have in the first few months. You will, no doubt, be buying loads of equipment, advertising, etc, if it's a new start up, so being VAT registered may well give you a cash flow advantage for the first few months in that your VATable costs may exceed your income, meaning VAT repayments to aid your cash flow which may mean you can drive the business forward quicker. It really will depend on your forecasts.

Another point though, is that if you're buying a business, rather than renting an empty property, you may have to register for VAT from day 1 if the previous owners were registered. It would be a transfer of a going concern, meaning you have to register if they had to register, and then you avoid being charged VAT on the price you're paying them.

JohnD_68

Thanks for your responses, it's good to get all the angles and also different opinions and advice.

My start up expenses do include some VAT but not enough to give me any significant cash flow advantage I don't think - I will hopefully be hitting the ground running so to speak so should have plenty of cash coming into the business in the first couple of months or so (assuming my sales forecasts are not too optimistic).

Suarez

You either need to keep below the VAT threshold or have revenues of 120-150k in my experience. Most of the food you buy will be zero rated. As soon as you turn it into a plate of food you sell it standard rated. There will be very little purchase VAT to claim - drinks probably being the biggest.

The flat rate scheme would probably be the way to go.

Pennywise

Suarez wrote: »

You either need to keep below the VAT threshold or have revenues of 120-150k in my experience. Most of the food you buy will be zero rated. As soon as you turn it into a plate of food you sell it standard rated. There will be very little purchase VAT to claim - drinks probably being the biggest.

The flat rate scheme would probably be the way to go.

It all depends on the forecasts and then, once it's up and running, the reality of the numbers. It's one of those trades where you really can't second guess until you know how it's going to work out. For example, the "split" of trade makes a massive difference, i.e. whether it's a "day" place with food and soft/hot drinks or a "night" place with food and alcohol. Also, depends on whether the equipment is bought outright or leased.

There are still high vatable costs in a restaurant, such as the power, equipment leases, crockery/cutlery/linen replacements, laundry, waste disposal, security, professional fees, and VATable purchases such as alcohol, soft drinks, and some vatable foodstuffs. The flat rate applicable to a restaurant is quite high. So, especially in the "building up" stage, it could well be that the normal VAT methods are better than the flat rate scheme.

Too many unknowns to answer "register yes or no" or "flat rate scheme yes or no" without actually knowing the facts of the matter and running the numbers in some decent forecasts to highlight the effects of VAT.