The first thing we learnt about VAT and coffee shops is that there are lots of urban myths around the subject. When we were speaking to coffee shops owners we were hearing lots of different things about what coffee shops could do to save money on VAT, even some accountants were mis-informed. So our first thought on VAT for you is, check and check again with VAT for your coffee shop because a lot of people are not operating inside the law, either by design or by ignorance.
With VAT currently being 20% it makes up a significant proportion of each cup of coffee. The key thing to remember is that this money is collected by you on behalf of the TAX man and the money belongs to the TAX man and not you. Your daily sales takings (gross sales) will include any VAT you have charged on items, if you remove the VAT charged this is called your NET sales and your NET sales is what you should work with.
In lots of businesses the things you buy have VAT on and the things you sell also have VAT on and so they cancel each other out. But in the world of coffee shops most of the food and drink products you purchase do not have VAT on them, they are VAT exempt, however when you sell it it does have VAT on it.
One of the urban myths that we were told by several coffee shop owners was: the way you make money in this industry is to put lots of your sales through the till as takeaways because you don’t pay VAT on these. That way you are making 20% extra margin on each drink. The fact is that VAT has been chargable on hot drinks for years irrespective if they are drunk in or taken away so this is a load of rubbish and should be ignored.
Your till system is important for calculating your daily VAT take, so you need a till that can handle this. Some items do change from being VAT paid to being exempt depending whether they are consumed on the premises or taken away, and sandwiches are a good example of this. So your till system needs to be able to distinguish between a VAT exempt sandwich and a VAT charged sandwich. We do this by having a button which asks if its consumed in or out and the till then calculates the VAT on it. So we enter each item we are going to sell into the till and state its VAT status for both eaten in or taken away. Then at the end of the day, the till can tell us exactly the Gross & NET sales. The difference between the two is the VAT you have collected for the TAX man (aren’t you kind).
VAT returns can take you by suprise if your planning is not up to scratch. We suggest creating a seperate tax bank account and transfering at the end of each week the collected VAT into the TAX bank account. That way, come the time of the VAT return, you have all the money required sat in the TAX account, which also stops you from accidently spending it.
What has VAT on?
The following are examples of standard Rated (20%) items, irrespective if they are consumed on or off premises:
Crisps, sweets, bottled water, coffee, tea, hot chocolate.
HM Revenue & Customs provide the exact guidance that you should refer to but it can be difficult to understand. Here are some notices to look at: