Posted on Leave a comment

Spending Review 2020: Rishi Sunak Raises National Living Wage Only Just

Spending Review 2020: Rishi Sunak Raises National Living Wage Only Just

Spending Review 2020: National living wage to increase by 2.2% this April

The national living wage will rise from £8.72 to £8.91 an hour and will be extended to workers aged 23 and over from April 2021, the Chancellor has announced.

Rishi Sunak confirmed the increase in his Spending Review 2020, which was set out in Parliament today. The review is a wider macro-economic statement with very little focus on individual consumers – we’ve rounded-up the key announcements below.

When it comes to the national living wage, the 19p increase represents a rise of 2.2%, and the scheme will also be expanded to cover those aged 23 and over – up from those aged 25 and over at present. This expansion is part of a wider Government plan, which aims to extend the national living wage to cover workers aged 21 and over by 2024.

The Treasury estimates this will likely benefit around two million of the lowest paid workers. But the Chancellor hasn’t gone as far as increasing the standard rate to £9.21 – something the Government consulted on earlier this year.

Workers aged under 23 will also see an increase to their national minimum wage rates of between 1.5% and 3.6% depending on their age – we explain the difference between the national living and minimum wages below, and set out the upcoming changes to wages in the table.

Compulsory living and minimum wages

National living wage (hourly)National minimum wage (hourly) (1)
Age 25+ (age 23+ from April 2021)Age 21-24 (age 21-22 from April 2021) Age 18-20Age under 18Apprentice
Current level£8.72£8.20£6.45£4.55£4.15
Level from April 2021£8.91£8.36£6.56£4.62£4.30

(1) Applies from school leaving age, which varies around the UK.

What is the national living wage and how does it differ from the minimum wage?

Introduced in July 2015 by the then Chancellor George Osborne, the compulsory national living wage is the lowest wage that can legally be paid to employees of a certain age – and today’s announcement confirms it will now apply to those aged 23 and over from April 2021.

It’s higher than the compulsory national minimum wage, which applies at varying rates to employees under this age and is also rising from next April.

But both the national living wage and national minimum wage are different from the real living wage, which is the amount calculated by campaign group the Living Wage Foundation as the minimum pay workers and their families need to live on. The real living wage, which covers everyone aged 18 and over, is currently £9.50 across the UK and £10.85 in London.

When the national living wage was first announced, MoneySavingExpert.com founder Martin Lewis blasted it as being “naughtily nicked” from the Living Wage Foundation to give “extra credibility” to the scheme despite not paying that amount.

What else was announced in the Spending Review 2020?

Other points of note that were announced in today’s Spending Review include:

A pay boost for NHS staff and low income workers but freezes elsewhere:

Doctors, nurses and otherNHS workers are set to get a pay boost in the next tax year, though the exact level of the rise hasn’t yet been set.

Around 2.1million public sector employees earning less than £24,000 a year will also get a boost worth at least £250 at the same time but other public sector workers will see their pay frozen.

A new scheme to help unemployed:

A £3.6 billion cash injection has been provided to the Department of Work and Pensions for next year to help get people back into work.

This includes a new three-year “Restart” scheme aimed to help more than one million unemployed people find jobs, by offering “intensive and tailored support” to those who have been out of work for more than 12 months – though full details are still to be announced.

Posted on Leave a comment

How to account for VAT in Takeaway Food Business: Restaurants, Bar or Cafe

How to account for VAT in Takeaway Food Business: Restaurants, Bar or Cafe

How to charge and account for VAT on takeaway food business, chicken or kebab shop, fish and chips, eatery or restaurant, bar or cafe VAT accounting

For businesses that are runny a cafe, restaurant, bar, chicken shop, eatery or just a bar and cafe, accounting for the regular take away business VAT charge can be a nightmare. In this post we make it simple and understandable on how to account for and charge VAT on takeaway food business.

If you’re running a restaurant, bar or cafe, and regularly sell takeaway food, you will need to be up to speed on how to charge VAT on TakeAway Food.

We are going to be running a series of blogs on issues for indie food businesses, so do get in touch if there’s a particular topic or issue you’d like help with, or would like us to feature your business as a case scenario.

There is very detailed guidance on VAT on takeaway food from HMRC, which you can read here, but make sure you have a few hours spare, and have a degree in HMRC jargon!

Alternatively, read on for a lighter guide from My Web Accountants:

So firstly, let’s get a few things straight about VAT on TakeAway Food:

Look away now if your business is not registered for VAT. You don’t need to worry about VAT at all at the moment. If you’d like a chat about VAT and whether you should be registered, give us a ring or get in touch by email.

If you don’t sell takeaway food, you can also look away now, or even still just walk away!  If you’re thinking about it, then do read on, as it may affect your decision!

What counts as takeaway food?

HMRC’s definition is any food or drink purchased to consume off the premises: Keyword here is “consumed off the premises”.

If You have premises and sell takeaway food

If you serve food and drink on the premises, and consumed on the premises (not to take away) then you have to charge VAT on everything, quite simple.

Examples of premises are:

  • An entire restaurant business
  • An area with tables and chairs in a retail complex for the use of customers only
  • An outdoor area with tables and chairs for the use of customers only
  • Seating area in a supermarket, providing food and drink
  • A stall in a sports stadium, amusement park etc with facilities for use of customers to eat there

Basically any area with tables and chairs specifically for the use of your customers.

If in doubt, check with us by dropping a message or phone up HMRC.

The easy bits of accounting for VAT in Takeaway business:

Hot take away food is most likely to be standard rated for VAT (the current standard rate is 20%) but there are certain tests (more below).

  • Hot takeaway drinks are standard rated (20% VAT).
  • Cold take away food and drink is usually zero rated for VAT. Unless it’s usually standard rated (this includes things like crisps, sweets, bottled water etc).
  • Bottled water is standard rated! Crazy but true!

Tests for 20% VAT on hot takeaway food

OK so this is the not so fun bit, and I’d strongly suggest you get some advice on this.  The rules are quite long-winded, but here’s the straightforward bits.

Hot food is 20% VAT if one or more of the 5 following tests are met:

  1. It’s been heated for the purposes of enabling it to be consumed hot
  2. It’s been heated to order
  3. It’s been kept hot after being heated
  4. It’s provided to a customer in packaging that retains heat or in any other packaging that is specifically designed for hot food
  5. It’s advertised or marketed in a way that indicates that it’s supplied hot

So for example, if it’s hot because you’ve just baked it (think sausage rolls, muffins etc) but usually served cold it will be zero rated.

If you just don’t get accounting for VAT in takeaway business:

Well, It’s not straightforward, is it?  Our suggestion would be to apply each of the tests above to your specific takeaway menu, then it will make more sense.

For instance – hot baked potato: think through the 5 tests above, do you think you could say yes to more than one of them?  I think you could say yes to all 5 tests for a baked potato so it is a standard 20% VAT on hot baked potato.

OK how on earth do I make sure I am charging the right VAT rate for a takeaway business?

To get it right you need to make sure:

a) you’re charging the right amount to your customer and

b) you’re declaring the right amount on your VAT return

We’d always recommending automating this bit, and using EPOS software that links into your accounting software (we love Xero by the way). It would be a nightmare to try to calculate and record every sale as you made it, and would massively slow down your serving times.

How do I get my EPOS/till system to record the correct price and VAT?

Firstly you can add all of the food and drink products that you sell into your EPOS, adding the correct VAT rate where you know it.  And as rule of thumb, – do your research or get advice on the correct VAT rates before entering all your products into your software!

The best EPOS software will allow you to put different prices for products that you serve on the premises or takeaway. That way you can choose the correct one when you sell it.

If your EPOS software doesn’t have a feature to add a different price you will have to add a separate product for each takeaway item, with the correct price and VAT.

At the end of each day, your EPOS will send the correct sales and VAT information to your accounting software, so that this information is ready and waiting on your next VAT return. Voila.

And what are the best EPOS systems for selling takeaway food and account for VAT?

EPOS solutions that offer separate takeaway prices include Kounta, Nobly and IntelligentPOS. We also love iZettle which has a great EPOS solution, and ideal for hospitality businesses.

So there  you have it, you can now almost account for VAT when you sell takeaway food. Remember you can always hire us to take care of the accounting for you, at very affordable rates, no binding contracts, accountants that are available on pay as you go. Just drop us a message below and we will get back in touch with you.

Posted on Leave a comment

UK Gift Aid Rules: When a gift not a gift?

UK Gift Aid Rules: When a gift not a gift?

Don’t get caught out on UK Gift Aid Rules: When a gift not a gift?

In general terms a ‘gift’ is something freely given, with no expectation of anything in return. If something is received in return, either contractually or as a reciprocal benefit, the ‘gift’ is not actually a gift or no longer qualifies as a gift.

In the context of charitable giving the Gift Aid rules do not permit a giver to receive a benefit ‘in consequence of making their gift’ other than where it is very small and within so called ‘de minimis’ rules. Donations that pay for a contractual obligation are also not gift-aidable for UK tax purposes.

This is why sometimes we need to ask detailed questions before agreeing to make a donation from a giver’s account to the recipient that they have nominated.

Let’s look at 7 common examples of when a Gift aid donation or gift is not a gift-aidable gift for UK Tax Purposes:

1. Donations to individuals in, or studying for, Christian ministry

Where an individual makes a gift to another individual, clearly this cannot be gift aided as there is no charity involved. However, if the gift is made to a charity or there is a charity receiving the donation in order to pass on to the final individual, Gift Aid can be claimed and the giver can ask for the charity make a donation to the individual recipient.

Having made a charitable gift to a charity, the charity must make sure that the funds, including the tax reclaimed are used for charitable purposes only, under English law. Three occasions where a charity can intervene to ensure this is the case are:

  • Donations from a close relative’s giving account to a Full Time Christian Worker. HMRC regard this as providing a benefit, by association, to the giver and therefore this is not permitted. The one exception to this is where the donation request is to fund ministry expenses – that is the cost of equipment, training, materials and other facilities relating to the Full Time Christian Worker’s (FTCW’s) ministry.
  • Total support for the FTCW exceeds a pre-defined amount. A charity can set a cap on the total amount that a FTCW can receive from them each year, to ensure that this remains charitable in law. Donations that approach the cap should trigger a review and, in appropriate cases, an increase in the cap for the benefiting individual.
  • When a Charity is for example asked to support a Bible College student, they must make payment to the student rather than the college. Therefore, even if that support is used to pay tuition fees, there is no contractual payment.

2. Donations to overseas causes

This is a complex area. But in general, it is not possible to make a gift direct to an overseas charity and claim gift aid relief. Rather, one can give to a UK charity for them to claim Gift Aid and for them to make the gift overseas. The charity would need to undertake additional checks required by HMRC for overseas payments first and must not be directed to make the payment to the overseas cause.

3. Paying for mission trips

This is very dependent on the way that an organisation or religious charity structures and communicates their mission opportunities. But, if there is a fee or minimum amount that participants must raise in order to participate, it is likely that gifts towards the mission trip will not qualify for Gift Aid.

4. Membership subscriptions & National Trust

Some charities such as the National Trust benefit from special legislation enabling membership subscriptions to be Gift Aided in respect of rights of admission to property. However, more generally, subscriptions cannot be Gift Aided where the benefits of membership exceed the permitted limit.

5. Auctions

Buying an item at a charity auction is not a gift, but a contractual payment. However, where the amount paid exceeds the market value of the benefits procured, it may be possible to Gift Aid the overpaid portion of the payment. This is called the ‘split payments rule.’ Further explanation of this can be found on the Gov.uk website.

6. School fees

Payment of school fees, even if the school is a charity, cannot be made under Gift Aid since this is a contractual payment; nor should other charities make payments for fees of specified students from Gift Aided funds. It is however possible to fund bursaries for students more generally.

7. Gifts with conditions

Where the donor places conditions on the use of their gift, the gift is potentially disqualified for Gift Aid purposes. The analysis here is tricky and readers are explore more reading to gain a more detailed explanation of this including the distinction between ‘restricted fund’ donations and conditional gifts.

Posted on Leave a comment

e-Commerce Selling: How to calculate your Inventory Value

e-Commerce Selling: Calculating inventory

Calculating Inventory Value and Cost – The Importance

We all know the importance of holding the correct inventory levels in our business, ensuring we meet customer demand, yet minimising stock holding costs and risks of obsolesce. However, do you know the impact of ensuring you have inventory recorded at the correct value?

UK Accounting Standards (FRS 102) state that inventory must be held in the company records at the lower of cost and the estimated selling price less costs to complete and sell. But how do we calculate cost?

Many SME business’ value their inventory based on the most recent purchase invoice from their supplier as this is the easiest method, however, is this accurate and what about the valuation of work in progress?

Calculating the inventory “cost”

Below is a summary of what should make up the calculation of “cost” for each line of inventory

Cost of purchase must includeFurther comments
Purchase priceInventory should be recorded at the spot rate at the date of the transaction if purchased in a foreign currency.
Import duties and other taxesThese costs should be included unless recoverable from the relevant authorities.
Transport and carriage costsThese costs should be included to the extent that they are directly attributable to the purchase of inventory.
Trade discounts and rebatesAny trade discounts or rebates should be deducted from the cost amount.
Cost of conversion (work in progress) must include:Further comments
Costs directly related to converting raw materials into finished goodsFor example:
– Direct labour (to include: gross wages, employers NIC, pensions, employee benefits)
– Subcontractor costs
– Specific components
Variable production overheadsFor example:
– Indirect materials (adhesives, packaging etc.)
– Indirect labour (to include: gross wages, employers NIC, pensions, employee benefits)
Fixed production overheadsFor example:
– Depreciation of plant, equipment, factory buildings
– Maintenance of plant, equipment, factory buildings
– Factory management costs and administration

Once the cost has been established, there are several valuation methods permitted under UK accounting standards, which are:

  • Specific Identification – this method is used for inventory items that are one-off bespoke items or produced for specific projects.
  • FIFO (First items to enter the inventory are the first to be used)
  • Weighted average

Depending on the valuation basis used, it is clear from the above that you may end up with differing values for stock and work in progress. The impact of this difference on the financial statements is potentially significant and we have provided a worked example below to show the difference under both the FIFO and weighted average bases of valuing inventory:

Valuing Inventory Example

Best Products Limited holds 200 widgets at its year end of 31 December 2017. The company’s purchases and sales of stock in the year were as follows:

Date of transactionQuality of widgetsInvoice price per unitTotal cost
1/10/17Purchase150£2£300
1/11/17Purchase100£2.50£250
1/12/17Sold(50)£5
31/12/17200

Using the FIFO method of valuation, the stock would be valued at £450 at 31 December 2017 or £2.25 per unit [(150-50) x £2 + (100 x £2.50)].

Using the weighted average method, the stock would be valued at £440 at 31 December 2017 or £2.20 per unit [(150 x £2) + (100 x £2.50)x 200/250].

Impact on profitability

If we consider the impact on profitability under the two scenarios:

Year end 31/12/2017FIFOAverage cost
Sales250250
Purchases500550
Less closing stock(450)(440)
Total purchases100110
Profit before tax150140
Gross profit margin60%56%
Tax (19%)(29)(27)
Profit after tax121113

As can be seen from the above, the gross profit margin is affected by the valuation method chosen, which in turn impacts upon profitability and the tax payable.