VAT on school dinners?

Lifeisbutadream

I also think that when the VAT man looks at who should pay VAT they should take into account profits - as you said you only make around £20K - £30K profit with a higher turnover - we are pretty much the same - our business turned over £150K last year - there was a profit of just over £20K - but we obviously have to charge and pay VAT - if it was as black and white as 'profitting' £64K then it would be more understandable.

benjacksmum

We have just got a sale going through on our sandwich shop to go into this school catering business and it was absolutely soul destroying paying the VAT man then.

Because we had a really busy shop and were successful due to being good at what we did, there was no way we could avoid paying VAT. We are turning over just under £2.5k per week and yet we only made £18k profit last year (£9k each salary for working 6 days a week starting at 6.30am). What gets me is that our customers do not expect to pay anymore for their sandwiches just because we are VAT registered, so it hurts when scruffy joe bloggs' greasy spoon down the road that doesn't turn over anymore than about £50k a year can charge the same prices as us, yet out of that £1.65 for a bacon butty, we also have to pay staff and VAT where as joe bloggs is quiet enough to run it with him and his wife and keep the VAT element for himself. If we charged more, customers would simply go elsewhere. It makes us a victim of our own success.
For us it's not Value Added Tax, it's Value Inclusive Tax :mad: (if that makes sense). It's not even as if we can claim much back as most of our raw ingredients are zero rated anyway. We are lucky of we can find £1000 to claim back in a quarter. It's crucifying for us.

Anyway, rant over. Feel better for that now, thank you.:rolleyes:

Boo Hiss to the VAT man!!:mad:

JasonLVC

Hello everyone!.

The trick to VAT is always ask this question. WHO is Supplying WHAT to WHOM? and you'll be a VAT expert overnight.

YOU are SUPPLYING catering services to a SCHOOL. Your invoices will go directly to the school and so you are making a taxable (ie, standard rated), supply of catering. The School then makes a seperate supply of catering to the children. If this is an LA school, it will be able to recover the VAT you charge it under s.33 of VAT legislation which basically means a statutory body providing statutory services can reclaim the VAT it incurs in providing those statutory services. VAT office talking guff as usual - nothing to do with 'profit making' and all to do with Local Authority dispensations.

If you provided your catering to a fee paying school (ie, not statutory school), it would not be able to recover the VAT you charge it as a fee paying school makes only exempt supplies (of education) and thus cannot recover the VAT it incurs in providing that education. Catering is closely related to the supply of education hence it is an exempt supply when the fee paying school charges little Timmy's parents for school dinners!.

Do remember that if you are selling your business to another business and there is no break in trade this may be a Transfer of a Going Concern and is a non-supply for VAT purposes (that is, you don't charge VAT on the sale of the business) which improves cash flow and avoids Stamp Duty Land Taxes.

Also remember following Compass Catering vs. HMRC [2007], that the sale of cold food/sandwiches off premises can be treated as zero rated, not standard rated catering provided they are cold sandwiches/food items and not eaten on the premises - so ham sarnies are zero rate whilst hot bacon butties will be standard rated. Same goes for pasties that are not kept warm for sale.

I'm guess I'm saying that it is a struggle, that VAT registration hurts when you just reach the threshold, but take advantage of zero rating where you can to remain competitive and you could always consider dis-aggregation if the split is different enough.

That is, keep the shop under £64k under the current partnership/ltdcompany. Then set up a new ltd company for te school catering venture. If you keep the two entities seperate with seperate bank accounts, trading names, etc it is just possible to convince HMRC that the two businesses are seperate and therefore treated as such meaning shop can trade upto £64k before registering and Catring venture can do the same thus technically you could earn £128k pa turnover before needing to register - not without some risks and can be costly to maintain two sets of accounts but perfectly legal.