By keeping everything on a small scale, most micropubs do not make more than £90,000 profit in a year, which keeps them below the VAT registration threshold.
The Tele needs to get with the program. It’s sales, not profits, of under £90k that leaves out VAT.
But, you know journos and numbers. Acshully, journos and knowledge…..they don’t even get booze right these days, O Tempora, O Mores…..
I remember when the youngest Grist passed his A level English, he asked his teacher what was the best degree to go for to get a job in journalism. She just smiled and said “Your degree is irrelevant. Does your family know anyone connected with a newspaper?” Looks like the inbreeding is having its usual results…
What a daft mistake to make. Difference between £90k turnover and £90k profit is enormous when you’re talking about businesses at that end of the scale. The journo appears to be Durham-educated trainee who also did work experience on the Times business desk. Bearing in mind it’s a trainee, someone with a bit more knowledge really ought to have had a good look at this before running it.
I think that 90k turnover is a very small place. I suspect there are food trucks that do more than that, let alone restaurants.
The probably hired a failed HMRC bod….
The writer of this article seems to be an intern so I am inclined to forgive her. As it is the Terriblegraph there’s a fair chance it was never seen by a sub, but if it was, poor show.
BTW, someone in the comments pointed out that as a micropub’s major cost is buying in beer, it would make sense to register for VAT regardless of turnover.
It would be interesting to know the economics of such an enterprise. Would it be a viable semi-retirement gig, I wonder….
Is that right? If I’m a landlord then yes, I pay VAT on the beer and can reclaim it. But I also have to remit the VAT I charge to the customer when he buys a pint, and that will be more than the VAT I pay for the beer, so I’ll be out of pocket. Or am I (quite possibly) missing something?
Dunno. We don’t have VAT where I live.
If you’re under the threshold, registering can make sense if you’d reclaim more than you pay. This could be a result of startup capital expenditure, or because most of your trade is with furriners. My trade with Japan means I reclaim, most quarters. Suits me.
If you can sell all your beer then you are up on the beer VAT, but then you have to pay VAT on the leccy, gas, beermats, glasses etc. It’s definitely not clear cut.
But you pay VAT on your inputs whether registered or not, registration allows you to set the input VAt against the output VAT.
Nah. It can make sense to register for VAT voluntarily if your customers are all themselves VAT registered businesses. They don’t mind you charging VAT as they can claim it back. And you can reclaim input VAT on your costs. But if your customers are Joe Public, you’re adding to what you charge them.
Many people think that people who don’t know what they are talking about should keep quiet. I’m all for dumb advice. I can charge for sorting it our afterwards.
Agreed! I did when I went self-employed although I was below the compulsory registration limit because my largest clients were VAT-registered. I calculated that even if I swallowed the VAT on fees to non-VAT-registered clients I should still be better off.
Staff is a massive cost for most businesses and they aren’t VAT-reclaimable. Ditto rent and rates. But once you’re VAT registered, you have to charge VAT on everything.
So unless you’re in a really weird situation where your VAT-bearing costs are higher than your income (in which case you prob shouldn’t be in business) or pretty-much all of your customers are VAT registered/overseas — again probably not true of a pub — then the taxman wins by you being registered.
If you are big enough to employ staff then your turnover is probably over the VAT threshold.
You employ yourself, even if you’re a director and not legally an employee — you’d still need to make enough profit to pay yourself some dividends and that isn’t VAT-reclaimable.
“It would be interesting to know the economics of such an enterprise. Would it be a viable semi-retirement gig, I wonder….”
I would really not want to go into straight pubs. But this sounds a bit like the Beckford Bottle Shop in Bath. You can go in and buy bottles of wine, but they also have a bar area and serve some bistro food. Have a pub, beer shop and something simple to nibble on (pasties etc).
Confusing profits and revenues: isn’t that Gruaniad territory?
My wife’s hairdresser keeps her turnover to below £90k pa — by working less.
Yep, this is pretty common. For a lot of small businesses it’s an unfortunate place to incentivise them to stop growing, because it’s around the point where many start thinking about making the leap to take staff on. In fact you’d have to be pretty ignorant of how small UK businesses work to not be aware of the issue, which is why it’s so disappointing to see this error in print.
A little bit of heresy here: I wouldn’t mind cutting the threshold down to something like £10k or £20k, high enough that someone dabbling in some form of trade as a side-gig can see how it goes, but if you want to take it seriously and go full-time then you need to treat it like a “proper” business and see if your model is still viable then. There are one-person or family “hobby” or “lifestyle” businesses that aren’t terribly productive and the change would encourage them to either scale up or find something higher value to do. Would also make VAT fraud less attractive, which is one of the problems with a fairly high threshold like this.
Thresholds in the EU are generally quite a lot lower than here, France has a different rate for supply of goods vs services (€85,000 vs €25,000) which seems fair given the different business models involved. https://en.wikipedia.org/wiki/Value_added_tax_registration_thresholds_in_the_European_Union
And? Have lower VAT thresholds encouraged blossoming entrepreneurship in the EU?
Or you could stop bothering HMRC with all those numbers…
At the moment, there’s already temptation near the £90k threshold to take some cash in hand work and keep it off the books, rather than simply turn the work down. Bad consequences if you get caught though – like Norman says it makes a difference what kind of customers you’re dealing with too. Similarly if you discover you made an error with the timings of your sales that took you over the *rolling* 12-month turnover limit, it’d be very tempting to massage the recorded dates if that’s possible.
Obviously some people would evade who didn’t before if the threshold was cut. But anyone who turns over anywhere near the current threshold would be taking a huge risk in doing so, as that much business is difficult to hide. I’m sure there’d be people with a side gig not reporting they’d crossed above the new, lower threshold – but generally no loss of revenue, since that wasn’t taxed before either. (Chances are that kind of person is evading income tax too.)
The big problem with VAT is that unlike income tax it’s not so easy to structure it so it’s only payable on what you make above a threshold. Smoothing it out like that would be a nice way to solve the problem I’m talking about but VAT registration is treated in a basically binary way: once you’re over the threshold it’s payable on everything. A lot of small businesses say it’s only worth sticking near the £90k threshold (but not too near, because of the risk of accidentally breaching it on a rolling 12-month basis) or expanding substantially to make the extra work worthwhile, say to £130k or so. For a one or two-person operation, that leaves an uncomfortable dead zone in between.
Firms tend to expand to the point where a cliff-edge hits and a lot stop there, but £90k is a particularly stupid place to encourage small businesses to cap out. Same deal with French firms stopping at 49 employees because a bunch of labour regulations kick in at 50. (And other research suggests many of the “49” employee firms have just massaged the numbers to dodge the limit.) https://www.aeaweb.org/research/charts/french-firms-50-employees
Nah. The criterion is whether you’re B2C or B2B. If you’re B2C, whatever the threshold you’ll suddenly make yourself xx% more expensive if you cross it, and lose trade to those just under or be tempted to work cash in hand. This becomes irrelevant if your client base is itself registered, and cash in hand stops being worth the risk.
Yes, there’s a lot in this analysis because the incentives to accept or evade registration depend a lot on your business model and chance of getting caught. A lot of people are compliant regardless of low risk but incentives can change the decisions of the others. I’d also add that people are more motivated to evade if they can’t reclaim much VAT on their inputs. Goods and services can work a bit differently so I understand France distinguishing the two.
Having said that, one of the arguments for cutting the threshold is that it reduces the problem people face if they start taking their business more “seriously” but find themselves undercut by the moonlighters, side-giggers, lifestyle businesses etc. Not that it eliminates the problem because there will always people under the threshold (unless you set it to zero like Greece or Spain – but that stops people dipping a toe in the water, and anyway how seriously does anyone think the Greeks and Spanish take such a rule?) and there will always be people above the threshold but prepared to evade (particularly if they’re not far above so have little risk of being caught). But lowering the threshold would push both these problems further down the food chain.
Do micropubs have little tiny glasses?