What taxing times
We had a great puzzle over this one. As it concerns VAT it didn’t take much to confuse me – I am an admitted numpty when it comes to sums and I’ve been labelling it that Very Awful Tax for yonks.
But it also confused Huw Griffiths who emailed from one of his two sites in Wales: “Hot Costa coffee VAT rate was reduced to 5% on 14th July. As you can see from my Costa invoice my 40% discount still shows a 20% VAT rate. Spoke to Costa rep with no luck…just fobbed off my request for a VAT expert to contact me.”
He had also heard from another trade magazine that other Costa customers had also been complaining.
He adds: “As you will see from my Nisa forum posts it looks to me as if Costa is pulling a fast one thinking that their dummy store customers do not understand VAT rules.”
Huw reckoned that, at this rate, it would cost nearly £500 a month on his two stores. “The more VAT paid to HMRC decreases my profits.”
One had a great deal of difficulty getting one’s head around this.
So Huw further explained: “VAT on these invoices is reclaimed by us from HMRC; the effect is it reduces the amount of VAT we pay to HMRC. A minus VAT on a supplier invoice actually increases the amount of VAT due to HMRC.”
He also sent a breakdown of his August invoice. I didn’t understand it but I reprint it here because I’m sure it will make sense to you. Total £2147.90, minus 107.40 VAT giving a total of £2040.50
“We will have to pay HMRC the £107.40 above, plus we have a double whammy of loss of reclaiming £107.40 on below calculation. Result sum now due to HMRC is £214.80
“If they had applied 5% VAT to margin amount: Total £2147.90, VAT+ £107.40 = Total £2255.30
We would reclaim £107.40 from HMRC.”
He even further explains: “You cannot apply a different VAT rate to the product on any invoice different to the VAT rate the product was retailed for, and the same applies to any discount on an invoice.
“What Costa is doing is selling us a product at 5% VAT rate and then charging us a 20% VAT rate on our profit margin. On the calculations above Costa is reducing their VAT due to HMRC by £214.80 therefore increasing their profit by £214.80. Multiply this by the number of machines in the market place and they are making millions of pounds a month extra profit. Interesting if we could see a WH Smiths’ Costa invoice and the amount the VAT rate applied to their profit margin.”
I suggested that he involved his accountant and meanwhile put all the above to Costa who were perfectly nice about the whole thing.
A spokesperson said: “The partner is not being over charged and has not been over charged on any invoices impacted by the Chancellor’s VAT rate reduction. It would seem that the query re: 20% VAT has come from how our invoices are currently formatted. On the current invoices, VAT has been charged on the partner margin at 20% giving a gross margin amount, however, once the gross margin earned by a partner has been deducted from the value of the drinks sold the partner, they are left with a payment to Costa Express of X plus a VAT amount to HMRC of Y and a total outlay cost.”
And they added: “In light of the partner’s query, caused by the formatting of our invoices, we will be actively changing them going forward to ensure they are clear for all retail partners.”
I call that a good result. I reckon Huw has done everyone a favour in clearing any confusion.
Although I am still not much the wiser (this is why I work with words).
Contingency plans for Brexit
By the time you read this, it might not be all that relevant. Boris may have swung a tasty, oven-ready Brexit deal. But then again…divorce is seldom easy and Boris being BoJo.
In September The Independent reported: “Queues of up to 7,000 lorries will snake through Kent when the completion of Brexit brings border chaos, a leaked government document warns.”
Lorry park Kent sounds grim. But an ‘insider’ who has connections at one of the other major ports has informed me that there are contingency plans in place much as there were for World Wars 1 and 11 and wants to reassure fellow retailers that perhaps supplies won’t be as compromised as reported.
He says that Shoreham in West Sussex could be used for roll on-roll off containers whereas Portsmouth Southampton could serve the West Country and the South of England; Hull Newcastle could accommodate the North and Scotland; Swansea for Wales and the West Country; Hull could service central England; Liverpool for the central North and North-west England and Plymouth used for Devon and Cornwall.
He adds: “Drivers would gain time by being on a longer sea journey. They would take rest periods on board ferries. Drive on after a long drive on the Continent, rest on the ferry then drive for full legal hours in UK to reach their destinations.
“Using northern UK ports or Scottish ports saves long drives though England from the South coast ports. Saves time and money. Also clearing of customs would be faster by using multiple ports! The
system was used during war time.”
The harking back to wartime and Brexit in the same breath doesn’t inspire confidence but a back-up plan is always a good idea.