Ice cream parlours and VAT
You will have to register for VAT if your taxable sales are likely to be above the current VAT threshold. You will then have to charge VAT at the standard rate of 20% on your sales of ice cream and so on - this is known as 'output tax'. You will be able to reclaim any VAT you pay on purchases - this is known as 'input tax'.
Every quarter you will pay HM Revenue & Customs (HMRC) the difference between:
- all the output tax you have charged
- all the input tax you have paid on your purchases
Be aware that as a catering business, it may well be the case that many of the basic food ingredients (and perhaps ice-cream making ingredients) you'll be purchasing will be zero rated for VAT. So, depending on the nature of your business, you may have relatively little in the way of input tax to set against the output tax you have charged when it comes to working out how much to pay over to HMRC each quarter. If you buy in ready-made ice cream though, you'll pay VAT on it at the standard rate.
Nearly all businesses have to pay their VAT bill electronically - for example by direct debit or online banking. HMRC allows you some time at the end of each quarter before you have to pay the VAT due. So, for example, the VAT due on sales made in months one, two and three would be paid at the end of month four. Your VAT return will show your payment deadline date.
Businesses that are having trouble making their VAT payments, or are worried that future payments will cause them problems, can ask for help from the HMRC Business Payment Support Service. If your business needs this financial assistance to tide it over, HMRC will look at your situation and discuss temporary options that could help out. These could include letting you make payments over a longer period and waiving late payment surcharges. To discuss payment problems with HMRC you can call the Business Payment Support Service Helpline on 0300 200 3835.
It is likely that most or all of the things you sell will be standard rated for VAT, meaning that if you're VAT registered you'll have to charge VAT at the standard rate of 20%. Ice cream is always standard rated, while any food or drink supplied in the course of catering in a cafe or restaurant is standard rated too. If you sell any cold food such as sandwiches and filled rolls (but not things like sweets and cakes) to take away (but not to eat in) then these are zero rated for VAT.
You can contact the VAT Helpline on 0300 200 3700 to request further guidance if you need it. Helpful leaflets including Notice 700/1 Should I be Registered for VAT? and Notice 709/1 Catering and take-away food are available to download from the Gov.uk website.
The helpline will also be able to advise you on using one of the Retail Schemes. These Schemes are used by businesses that deal mainly with members of the public. You may find VAT Notice 727/3 Retail schemes: How to work the point of sale scheme and VAT Notice 727 Retail schemes helpful. Section 8 of Notice 727 contains details of the 'catering adaptation', which may be used by businesses which are unable to use the point of sale scheme.
You will have estimated your monthly sales income. Now you need to decide whether you must register for VAT. If so estimate the approximate amount of VAT that you will have to pay every quarter.
Making Tax Digital (MTD) for VAT
Under HMRC's Making Tax Digital initiative, VAT-registered businesses with taxable turnover above the VAT threshold must keep records digitally and use special software to submit their VAT returns. You can find out more about MTD on the Gov.uk website.
Alternative flat rate scheme
You might be interested in an optional flat rate scheme (FRS) for eligible small businesses. Under this scheme you continue to issue tax invoices to VAT registered customers, but the VAT payable every quarter is calculated as a percentage of your VAT-inclusive turnover. You apply the appropriate flat rate percentage for your type of business. However, this scheme cannot be used with the retail schemes, the margin scheme for secondhand goods or the cash accounting scheme. You can find full details of the FRS, who can use it, and the flat rate percentages in VAT Notice 733, Flat rate scheme for small businesses. It will help you to decide whether or not the scheme is suitable for you.