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businessadvice
Understanding
the zero split
VAT (value added tax) has an
effect on just about every
business in the country. It is a
tax that is collected by the
‘shopkeeper’ from his
customers and then paid to
HM Revenue and Customs
less, as appropriate, any VAT
‘suffered’ (paid) by the
business. Simple one may
think, well maybe not, warns
Kevin Andrews of Folkestone-
based VAT Consultants Ltd.
accountant, would apply that percentage to If a penalty is imposed then they can go back
your sales and only calculate VAT on, in this 20 years if necessary!
example, 75% of your sales. That sounds You were sure that the 40% was correct,
Zero or 17%?
simple enough, doesn't it, and it is, but you you tell them. Ok, so how do you prove it?
In the catering industry there is a
have to be careful. When was the last time you had this
complication in that your sales can be either
percentage checked independently over a
standard rated (17.5%), or zero rated (0.0%), to
Independent assessment representative number of days – over three
the point that the same item can attract either
Let’s assume that for years you have been days of trading, for instance? Can you produce
rate depending on where it is to be
claiming that, say, 40% of your sales are zero the records of the test? No? Then you may
consumed. For example, a cheese sandwich
rated. Now in walk a couple of VAT officers well have a problem, and it may not work
sold to be eaten on the premises is standard
and announce that they are going to observe checking it after the event! Remember that
rated, but if sold to be taken away and
your sales for the next day or so. Having done this scenario is just based on the zero split,
consumed off the premises then it is zero
so, they drop you a line and announce that but imagine if they decided that you weren't
rated.
you have been using 40% zero rated and they declaring all of your sales as well. It couldn’t
The normal method of calculating the split
have found that in fact it's only 10%. If your happen? Believe me, all of this can happen,
of standard and zero rated sales is to apply a
takings are £3000 per week, then the effect of and does.
percentage to your total sales. For example,
this will be a VAT bill over three years of some
25% of sales are zero rated, therefore when
£20,910, plus the interest, and possibly a ■ Kevin Andrews of VAT Consultants Ltd can
calculating your VAT return you, or your
penalty which can be the same amount again. be contacted on (01303) 242468.
A lesson learnt
and over the years changes to the business HM Revenue and Customs are about to
had occurred to affect the percentage, but increase their testing of cash businesses
Let me relate a true and recent tale for you.
no adjustments had been made. which they haven't really been concentrating
An Italian restaurant take-away owner in
To cut a long story short, I could see that on for a little while, that could include many
London received just such a visit. The VAT
the officers had made a fundamental error, takeaway businesses. In these circumstances,
officers decided that he had been
but this was very lucky! It took a lot of my advice would be to have your percentage
overstating his zero percentage, and under-
fighting, but eventually the whole checked by an independent person so that
declaring his overall sales. The result was an
assessment was removed, and I you can prove the percentage that you are
assessment for some £240,000 delivered to
would be the first to admit using. I have done this for my client
him just before Christmas. How would this
that, these days, such a result mentioned above for three
make you feel? What would you do?
is very rare. Needless days, and will be
As luck would have it, his accountant had
to say, my client was repeating the exercise
a colleague who, through another friend,
delighted, but in every six months. He now
knew about me, and thus I was called in to
other instances feels much safer, and
investigate and help out. It transpired that
businesses might not never wants to fall into
his zero percentage had never been tested,
always be so lucky. that trap again. ■
www.papa.org.uk
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