General Discussion
I'm never quite sure how the impact of VAT is passed on. If you look at the thread on "hairdressers chairs" you'll see that Taverner suggests that if the business is VAT rated then there would be no impact on hairdressing prices because the additional VAT is offset against VAT the business already charges (I think?). So I guess that the pasty tax affects bakers who trade below the VAT limit who would have to pass on the increase. Perhaps Taverner can comment on whether that's the correct interpretation. If so, how many bakers in Dawlish are below the VAT limit?
@User 4549 - from what i've seen on the news the deciding factor as to whether something is hot or not depends on whether it is hotter than the ambient temperature. so, to answer your question, i imagine therefore that whether or not you have to pay vat on your sausage roll will depend on how hot or cold the weather is.
So, if it is freezing cold outside and you buy a sausage roll inside the shop, even if you buy cold one, because that sausage roll will be warmer than the temperature outside the shop logically you should pay VAT on it.
Well, that's the logic of the argument as I see it.
(believe all this takes effect from this October)
Basically YES! Most takeaway foods already attract VAT, but certain ones (e.g. hot chickens from supermarkets do not) because of a current clause that says "above air-ambient temperature", and meant to be eaten in or near the shop or restaurant . The proposed change will remove the last part to read"all takeaway food will subject to VAT once it is heated to above air-ambient temperature". So could we end up with the situation of hot for the rich, cold or the poor, signs ...... OR maybe they coud sell cold pasties etc and supply a DIY microwave oven for customer use on the way out ? (=|:-D
Or to follow on from Lynne - if it's summer, and you buy a "hot" sausage roll, it will be VAT exempt ...... Hmmmmm, and will this mean when I treat myself to a 99 with clotted cream, it will be cheaper now? (=|;-)
Sorry. The sun must have got to me. Complete mental block. A hairdressers chair is effectively an "ingredient" to the business so the VAT can be reclaimed if you are VAT registered and there will be no cost to passon (I think?). The ingredients to the pasty would be treated similarly - so if they are VAT rated zero (because they are food) then a VAT charge on the "product" i.e. the pasty will have to be passed on to the public. But if you are a baker who isn't VAT registered does that mean you don't have to add the VAT surcharge to the cost?
@cheftallyrand - hypothetically would a baked alaska count as hot or cold if it was sold as a takeaway?!
What about hot cross buns when they not er.......hot?
Should they be renamed Not Hot Cross Buns for the purposes of VAT?
http://en.wikipedia.org/wiki/Cabinet_pudding
Wonder if it's best eton hot or best eton cold .........?
To get back to the question of VAT and how businesses pass it on etc, well it all depends on the business turnover.
If a business is not VAT registered then they do not charge VAT on their prices (what the customer pays) but they also cannot reclaim VAT paid out on things the business buys.
Some businesses can be flat rate registered, which is slightly different from normal and I'm not totally sure how that one works, and it all depends on their turnover.
However for a normal VAT registered business they charge the customer a price and have to declare to the customer whether it includes or excludes VAT. The final price though will always include the VAT rate (currently 20% on most things but some things are zero rated) on top of the price the business wants to get. So the business gets £1 and the tax man gets 20p - customer pays £1.20. The business may have bought the item for 60p (the gross price which is paid in full to the supplier) so can relaim 10p of that as VAT and so the item will only have cost 50p to them. So the business keeps 50p of the price it charged the customer and out of that come all their overheads etc etc and the bit that is left is profit.
At the end of each VAT quarter the business has to declare turnover and how much VAT is due on that, and also how much it has spent on supplies etc and how much VAT it is reclaiming on that. Whatever the difference is between the two is what VAT is then either due TO the taxman or due back FROM the taxman and this payment has to be made by the end of each VAT quarter otherwise late payment fines etc are due. Even if businesses claim money back from the VAT man they are not making money, they are simply reclaiming money they have already paid out.
Businesses that are VAT registered should have their number on paperwork (eg invoices, receipts etc) and available to anyone who asks for it and also show VAT on receipts and provide a full VAT invoice/breakdown for anyone buying an item who requests it. This can just be handwritten or a till receipt if it shows the breakdown and the VAT number of the business. So from that it should be easy to spot any local businesses who are or who are not VAT registered. And it is worth remembering when we buy things and think they cost a lot sometimes that not all that money goes to the business, the taxman always gets his share too.
How any business is supposed to get through the minefield of VAT declarations when they have to decide how warm/cold the day was when they sold a pasty etc is beyond me and shows how daft some of these rules are when you try to operate them in the real world.
@bryony. thanks bryony, sounds like you're an expert. so, if a bakery is not vat registered because it hasn't reached the turnover limit does that mean it doesn't have to charge the extra vat now on hot takeaways?
If thta's the case what's to stop a bakery business from just becoming a sort of cooperative of several similar businesses (e.g. one making bread, one making pies etc etc) sharing the same premises but all with a turnover below the VAT limit?
This problem has arisen because of buying products from “in shop” bakeries. Originally food purchased as “hot” for take away was taxable and normal bakery products were not.. Recently many bakeries have arranged for food to be strait from the oven, therefore hot but not labelled as a hot food take away (Grieg´s for example) and avoiding VAT. The chancellor has now closed this loophole. Any shop not registered can not charge VAT as Bryony stated. This move by the chancellor will increase the price of a “hot” pasty by 20% in larger shops or chains.
So, to be clear (as I know nothing at all about VAT) let's say there are two bakery shops in a high street. One is part of a chain like, for example, Warrens, the other a one off independent. Both are presently selling large pasties at, say, £2.50 each.
Would it be the case that come the introduction of this new VAT measure that the large pasties in the chain bakery would now cost £3.00 (£2.50 + 20% VAT) but that those in the independent would still sell at £2.50?
At what point does a business have to charge VAT?
Cheftallyrand I'm afraid there's VAT on an ice cream as well because it's a luxury item. However, if you buy the cone and ice cream separately then the cone is exempt becuase it's classed as a buscuit. So next time you buy a clotted cream ice cream from, say, Gay's Creamery, make sure they put the ice cream in your hand and sell the cone separately so you can save 20%
Mock not the need to save on 20% here and 20% there. Every little 'elps (as a certain very, very, very, large supermarket chain is always telling us!)
50p per day extra on a pasty = £2.50 extra spent per 5 day working week = £25.00 extra spent every 10 weeks = £130 extra per year.
That's £1,300 over a 10 year period. You could get a week's holiday in Spain for less.
@Lynne - very true, and hopefully most traders will use whatever loop holes there are (re ambient temp) to keep prices down. tho, taking off my chef hat & pasty lover hat, and putting on my trained nutitionist hat, i hope there aren't many who have a pasty a day. @Rach - loving your sense of irony & fun! (=|:-d having just returned to the uk to live, i never realised though, that any "foods" were classed as luxuries, i guess ice cream would come under "confection"? on a similar note, a few years ago while i was in australia and they changed to an equivalent of vat, they tried to class feminine hygiene products as luxurie!! boy did the public uproar soon change that, maybe public opinion needs to be louder here too?
My apologies by the wa for my postings not being paragraphed. I try, but for some reason posting via an iPad removes the paragraph formatting :-( Any advice webmaster?
Those of us with longer memories will recall that when VAT was introduced in 1973 (as a consequence of the UK joining the European Economic Community) the standard rate stood at 10%, reducing to 8% in 1974. Probably it all seemed like a good idea at the time.....
@cheftallyrand - think you'll find that feminine hygiene products (as they are euphemistically known) are classified as luxury products in the Uk and are therefore subject to VAT.
Do you know, we're real wimps today. We mutter and complain about the iniquitous tax on takeaway pasties but does anyone do anything? No.
Compare this with the "Bread Riots" in Devon in mid 19th century. Have just read about these in the diary of a Teignmouth man but they hit Dawlish, Torquay and elsewhere in S. Devon. See http://www.peoplesrepublicofsouthdevon.co.uk/2010/07/03/torquays-other-history-home-to-civil-unrest-%E2%80%93-bread-riots-in-the-bay/ for a short description.
The analogy of course is the taxing of staple foods and especially indirect taxation such as VAT which affects the less well-off proportionatley much more.
we basically dont protest about anything anymore, just sit back and take everything. The last protest that produced results was the poll tax
@Lynne 71 thousand pounds.
Yes it does mean that smaller bakeries can not charge VAT, but neither can they reclaim VAT paid on equipment bought or leased to make thier pasties. Some commercial rents also have VAT which they can not reclaim. So these VAT charges are passed on as part of thier costs, hidden in there pasty prices
Protests eh? Remember when petrol hit the dizzy heights of 80p a litre back in August 2000 and the Conservative Party organised the protests that led to fuel blockades? Those were the days. I wonder why the RHA and farmer friends of the Tories aren't protesting these days? To put the price 12 years ago into context, Marine Garage have put their prices up by a further 2p a litre to £1.45. That's 5p more than Sainsburys, at present.
I see that this debacle is now being referred to as "Pastygate" in the national media! I wonder if there'll be a film and who'll play the equivalent roles of Dustin Hoffman and Robert Redford?
My Cornish friend says that all pasties made outside Cornwall are imposters anyway and should be taxed accordingly!
I believe that the true Cornish pasty was divided into two - one half meat/veg and the other half jam. Does the new VAT rule apply to both parts?
@neilh - suggest you ask george osborne after all he's the one whose vat idea this was. perhaps though he's now wishing he'd never suggested it as i've noticed of late that he's started to look a bit pasty* faced.
(*yes, I know it's pronounced differently, but I couldn't resist it)
As was pointed out in an earlier post, many businesses who are not VAT registered charge very similar prices to those that are, partly because it is all about supply and demand and making sure you can sell your product, but partly because a non-VAT registered business cannot claim VAT back on purchases made of its raw ingredients, stock, whatever. So overall there isn't always much difference in overhead costs to be met and essentially passed on to the customer.
Shops and businesses will charge a) what price they think they can sell something at and b) what price gives them enough money to restock, pay their overheads such as staff, rent etc etc and still (hopefully) make a bit of profit.
Businesses can legally instantly up their prices to include the higher VAT rate due, but realistically they may realise that customers will baulk at the increase and so may only charge a smaller increase, and swallow some of the cost themselves. The only bit that is set is how much the tax man will take from the business for every item sold.
I remember as a teenager that McDonalds had 2 prices on display - eat in or takeaway, and that was because of no VAT on the takeaway items (if my memory is correct). That disappeared years ago and was probably another one of the loopholes that got closed, I don't remember there being a big fuss about it at the time.