The VAT theory
VAT is a great way of raising funds for the economy and in theory should not affect business owners.
Each business passes the VAT burden onto the next supplier and eventually the consumer pays the VAT and not the business. So in theory the business should not worry, as all things been equal, it should have no VAT to pay each quarter.
The story for small businesses
For the smaller business, however who are usually dealing with the general public (the final consumer) VAT really just pushes his or her price up.
So the next time you have lunch in a café and you get your bill for say £12.00, remember that you’re really paying £2.00 (20% VAT) to the VAT man and £10.00 to the café owner.
I often say to clients of mine (as a joke!) that they might as well have a separate till for the VAT man!
Of course I’ve simplified matters in this example – a restaurant might be able to claim some costs back and reduce VAT with their bill, but as most food is zero rated its unlikely there’ll be much to claim back.
Small business need help with VAT
In France recently their government has been much more proactive.
They’ve reduced their VAT rate, in restaurants anyway, from 19.6% to 5% – now that’s what I call a proper VAT decrease!