Of course, it’s unlikely the cafe would earn only a pound over the limit.
So how much more would they have to take, I wondered, to make it worth paying VAT at 20%?
“We’d have to take £140,000 a year,” he explained.
“To earn more, we’d have to be open longer, which means more wages, more energy, more maintenance.
“Only at £140,000 would we actually start to make more money.”
To recoup the tax paid, the cafe has to earn more money, which increases its costs. Profit margins are small, so to earn enough extra profit to cover the VAT, the business has to take another £50,000.
And no, this problem does not only affect one teashop in Somerset.
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