VAT Moss and E-Commerce Business

Disclaimer: Policies discussed are as of the January 8 2016 changes to the HM Revenue and Customs VAT MOSS guidelines for E-Commerce businesses in the United Kingdom. All UK VAT and VAT MOSS guidelines can be found here.

In 2015, as an answer to large companies driving sales through countries with low VAT rates, the European Commission issued changes to VAT laws forcing E-Commerce businesses to apply VAT rates to their digital services based on the consumer’s location in the European Union, as opposed to the business’.

In essence, the same £100 service would now be £120 if sold to a customer in the UK (20% VAT rate), £121 if sold to a customer in Spain (21% VAT rate), and £124 if sold to a customer in Finland (24% VAT rate). This proposed an immediate problem for every E-Commerce business across the EU- there were 28 different countries with 81 different VAT rates, the prospect of accomplishing the admin work alone seemed insurmountable. As opposed to registering for VAT in every country your business sold a product in, the EC offered the highly attractive option of registering instead for a VAT Mini One Stop Shop (VAT MOSS) to E-Commerce businesses. While VAT MOSS did solve a huge problem for e-commerce businesses across the EU, much confusion arose and remains about its exact operation and regulations.

What to Know & When to Register

The main goal of VAT MOSS is to simplify things for the business, and it only applies to business to consumer sales of digital services. If you aren’t sure if your product qualifies as a digital service, HMRC defines them in extensive detail here.

VAT MOSS was introduced as a platform to distribute quarterly VAT returns directly to each country digital services are sold in, as opposed to you submitting VAT reports individually to each country. VAT MOSS requires you to submit one return quarterly that identifies your business’ total VAT accumulation in each country digital services were sold.

In order to register, your business must already be VAT registered in each country you have a fixed establishment. There are no thresholds for the new VAT laws, so even if your business falls under the £82,000 UK VAT threshold, you must still pay VAT on digital services sold in other countries. This means if you own a micro e-commerce business under the threshold, then you must voluntarily register for VAT (don’t worry, you won’t have to pay VAT on services sold in the UK) in order to use VAT MOSS.

Remember, you only need to register for business to consumer sales of digital services. A consumer is any person or business that is not VAT registered, so if you are selling services to a business that is not VAT registered, you must treat it as a business to consumer sale. There are also exemptions if your sales fall under non-business activities, which are explained here.

VAT MOSS Returns

HMRC requests when using the VAT MOSS scheme that your business keeps records of each sale for up to 10 years. These records must include the member state of sale or the member state of consumption, the date, the taxable amount and currency, the VAT rate applied, the VAT due and currency, the payments received, the invoice issued, and the information used to determine the customer’s location. The list seems extensive, but most of the information is required on your service invoice. Apart from the data on your invoice, documentation of the customer’s location is the primary record that must be kept. Most businesses must keep two sources of information, but businesses under the UK VAT threshold only need to keep one. This may be information provided by the payment service provider, an IP address, billing information, etc. Almost any documentation that confirms your customer’s location will suffice.

When filing your VAT MOSS return each quarter, you will require, for each member state services were sold in, the VAT rate type (standard or reduced), the VAT rate percentage, and the total of all taxable digital services sold. You must also submit a separate VAT return for services sold in the UK (micro-businesses who had to voluntarily register for VAT may submit nil returns). If you are leery about filing your first return, the HMRC provides a detailed walkthrough for first-timers using the VAT MOSS scheme.

While VAT MOSS remains imperfect, as evidenced by continual EC gatherings and amendments to the laws, learning to use it has become essential to reporting and paying VAT returns across the EU. It is our hope that some of the trepidation regarding VAT MOSS has been alleviated, and that you now possess an understanding of the benefits VAT MOSS can have for your e-commerce business.

Pricing Your Restaurant Menu

Opening a new restaurant is definitely not child’s play. There is so much that needs to be done; developing a business plan, arranging the finance, acquiring a suitable location, setting up the kitchen, furnishing the premises, obtaining licenses, hiring and training the staff and so on. When all the founding steps have been taken, here comes the fun part of putting together the menu.

Compiling a menu is not just about what items your restaurant offers to the customers but at what price. Your pricing strategy has a long-term impact on your restaurant’s brand image as well as the sales revenue. A price is more than just a number. The same goes for existing restaurants as well. No matter how many years your restaurant has been in business, you need to evaluate the product pricing and the factors associated with it from time to time.
In this article, we aim to tell you about the factors that you should consider while you price your products.

Calculating the Food Cost

It is obvious that before you price any item on the menu, you need to know how much money went into preparing it. In general, it is widely acceptable for the restaurants to charge three or four times the food cost. Let’s take an example of the steak dinner.

A steak dinner typically comprises of a steak, a sauce, some bread, vegetables on the side like sautéed mushrooms, peas, and French beans or a side of fries and some salad.

The steak costs you £6 and the other items that come along with it account for £2, then the total meal costs you £8. The food cost should preferably be within the limit of 35% of the menu price. So, divide the food cost by 35% to arrive at the menu price of the steak meal.

Food cost * 100 = Menu Price
35
£8 * 100 = £22.86
35

You can price the steak meal at the minimum £22.86. As we mentioned earlier, the menu price is a little under three times the cost, which is acceptable. Furthermore, you could employ a psychological pricing tactic. Instead of pricing the steak meal at £23, you could go for £22.50 or £22.99. The customers perceive £22.50 and £22.99 as £22 and not £23, making it look like a good deal. You end up making almost a pound more on each steak meal without making the customer unhappy.

£22.99 for a steak meal sounds like a lot to you because you know it actually cost you only £8. But we are yet to consider the cost of labour involved, such as the chef, the servers, the bus boy and the cleaning staff. You need to pay these folks as well and it all needs to be covered through the menu price. You also need to take into account the overheads like gas, electricity, water etc. Besides, £22.99 for a steak dinner is just the minimum that you should charge. The pricing will vary with the following factors.

  • What model do you follow; table service or self-service?
  • How is the ambiance of the restaurant and if it is a casual dining or fine dining establishment?
  • Are your food offerings market-driven or demand-driven?
  • What is the location of your restaurant, downtown or uptown?
  • Who are your target customers? Are they residents, office goers, students, travelers, shoppers etc?
  • Do you have a medium of entertainment such as a live band?

These are some of the major factors to consider before assigning a price to the menu item. Also, involve the staff responsible for purchasing and inventory management in the process of determining the food cost.

Exercise Portion Control Measures

For your food cost to be the same for every order, you need to implement strict portion control. If you calculated the cost at £6 for a 6 oz. steak, all the other steaks that you prepare should weigh the same. Similarly, the quantity of accompaniments like sauce, salad, vegetables and bread should be the same as well. Instruct your chefs to measure each ingredient they use with the help of the measuring cups and scales.

Lastly, involve them in the exercise of portion control. They know the best because they are the ones who actually prepare the food and know precisely how much of what ingredient goes into making a particular dish.

Have an Extensive Menu

Along with the pricey items like steak and seafood, you could offer other less costly items like chicken preparations and pizzas. This will help balance your overall menu in case the cost of ingredients for the expensive dishes rises for a while. The sale of the less expensive items would offset the burden of the increased cost.

We hope this write-up gave you an insight into how important it is to put more thought into pricing the menu items. The price should not only cover the costs but also justify the quality of the food and the entire dining experience of the customers. We will be back with some more, interesting articles about restaurant operations. Stay tuned!

Restaurant Variance Analysis

Do you find your restaurant’s operating results unsatisfactory? Do the profits turn out to be diminished compared to what you had anticipated? It’s time you took a closer look at the operations scenario and figure out what’s making those numbers shrink. Variance analysis is one of the most powerful and practical tools at your disposal to investigate the deviations between the budgeted and actual results.

It goes without saying that restaurant owners prepare budgets from time to time for both the fixed costs and variable costs. The budgeted cost is then topped with a percentage markup to arrive at the selling price of the items on the menu. It is when the actual costs deviate from the budgeted that there is a variation between the budgeted and the actual profits. The variation could be either positive or negative. Let’s take a look at the following example.

Let us consider that your restaurant had expected to serve 1400 meals this week with an average bill of £30. That makes your budgeted sales £42,000. However, you ended up serving 1450 meals with an average bill of £32. Hence, you made an actual sale of £46,400. The difference between the actual sales and budgeted sales is called the variance. In this case, there is a positive revenue variance of £4,400 because the actual sales exceed the budgeted, which is a good sign.

The sales variance of £4,400 can be split into two parts; £1500 and £2,900 based on the idea of volume variance and price variance. The positive sales variance of £1500 is the result of the rise in volume by 50 meals at the rate of £30. On the other hand, the £2 increment in the anticipated average bill of £30 for all the 1450 meals resulted in the positive sales variance of £2900.

Similarly, if the actual sales fall short, there would be a negative sales variance, which could be a cause for concern if there is a major and consistent decline or stagnancy over a longer period. This is when you would need to analyze the variance. By that we mean, finding out what went wrong and why?

There could be several reasons the actual outcomes diverge from the anticipated ones. Particularly in the restaurant industry, one or more of the following factors are commonly responsible for the sales variance.
– Unforeseen fluctuations in the occupancy rate
– Varying bill sizes
– Deviation in the actual cost of labour from the budgeted affects both the cost variance and profit variance.
– Deviation in the actual procurement cost of ingredients from that budgeted affects both the cost variance and profit variance etc.

Whenever there is a negative sales variance, any increased costs can take up a major proportion of the sales revenue, thereby eating into the profits.

When do you analyze the variances?

The one very intriguing characteristic of variances is that not all of them are subject to examination. It depends on how significant or abnormal a variance is. For example, you accounted for cost of a specific quantity of the ingredients for the week to be £12,000. However, there was a rise in the prices of certain ingredients and you had to pay £13,000. The additions £1,000 spent on ingredients might not be as significant and hence, you might give it a pass.

However, if you continue to pay increased prices over the long run, you might need to analyze the variance in the cost of procurement. Renegotiating the prices of the commodities in question with your supplier would be the most sensible thing to do. If that doesn’t work out well, you could try looking for another supplier. However, make sure you do not compromise the quality of the ingredients. Some restaurateurs would also consider raising the prices of the specific items on the menu using the dearer ingredients.

Let’s not ignore the fact that the variance in the occupancy rate and cost of labour can occur alongside. The percentage aggregate variance could have a major impact on the profits. Therefore, it could be detrimental to your business to disregard a variance for analysis if you think its percentage is negligible.

So let’s face it, guesswork is risky. Conducting variance analysis on a regular basis is the practical and feasible method to prevent yourself from losing track of all the costs and deviations. We hope this write up helped you understand how vital the tool of variance analysis is when you want to establish the cause of discrepancies and implement corrective measures.

Previously we had shared an insightful write-up about efficient inventory management practices. In the upcoming article, we would discuss the winning strategies for pricing the items on your restaurant’s menu. Stay tuned!

Restaurant Inventory Management

In the current era of entrepreneurship, the food and beverage industry is making a lot of heads turn. Every so often we get to see a shiny, new restaurant opening its doors to the foodies in town. However, we all know that running a restaurant is not all unicorns and rainbows. It requires a strong business sense and consistent meticulousness to survive and grow.

Needless to say, the labour cost constitutes the major portion of the operating cost of a restaurant. The inventory cost sums up to be the second largest segment. The labour cost is a fixed cost. The cost of inventory is something that you can control to avoid wastages. Through this write-up, we aim to explain to you how crucial it is to have stringent inventory management policies in place, and how the implementation of these measures or the lack thereof can make or break your restaurant business.

Let’s take a look at some of the best restaurant inventory management practices that your business could embrace to minimize wastage and maximize profitability.

1. Prepare a Timetable

It is very important that you prepare a timetable for taking inventory and follow it consistently. For example, if you count your inventory on Mondays, stick to it. Fix a time for doing inventory to avoid any variations, like in the morning or at night. You cannot accomplish the task with precision if there is work in progress. Taking inventory before the restaurant opens or after it closes, are the best times to account for inventory. In addition, avoid doing the inventory when new stock is being delivered.

2. Set the Frequency

The frequency of doing inventory shall vary from one item to another, depending on their nature and frequency of ordering. The one thing that we can say with the utmost surety is that taking inventory only on a monthly basis is not good practice. In the restaurant industry, you often place orders on a weekly basis. Therefore, take weekly inventory of such items to keep a tab on their availability and rate of usage. Similarly, account for the items you order every day on a daily basis.

3. Follow the FIFO Method

FIFO stands for First In, First Out. It means using up the old stock before moving on to the new one. Most items in the restaurant storeroom are perishable. To avoid wastage, they must be used before they go bad. It also depends how well you forecast the demand of the items before you decide on the ordering quantity.

4. Systematic Arrangement

We cannot emphasize enough how crucial it is, the way you arrange items in your restaurant’s storeroom. The staff responsible for taking the inventory should be trained to follow the routine arrangement of the stock on the shelves to efficiently implement the FIFO technique. The older stock should occupy the front row on the shelves for being readily accessible. Once these items are used up, the next batch of inventory should be moved to the front, as we go. Do not forget to declutter your storeroom by taking the expired items off the shelves.

5. Make it a Two-Person Job

Assigning the responsibility of keeping track of the inventory to two employees is a great idea. The two in-charges could do the inventory separately and compare their results to see if there is any discrepancy. Having said that, it reduces the odds of you missing the inconsistencies, both current and probable.

6. Use Technology to Your Benefit

The market is flooded with a wide range of inventory management software. You could try them and find out which one fits your needs the best. Why we emphasize so much on accuracy is the fact that your inventory records have an impact on the Profit and Loss statement. Any incorrect details would skew the final picture of the profitability of your business, thereby jeopardizing it in the long run. The inventory count sheets you prepare using the program would not only help you track your stock levels but also reveal consumption trends of the various items across the timeline. The trend proves useful in forecasting the demand of such items to arrive at a precise ordering quantity.

7. Standardization is the Key

As highlighted earlier, the solution to a sound restaurant inventory management system is consistency, which comes from standardization. Standardize the units used for quantifying each item in stock, be it measure of weight or number of items. To reduce errors and increase the swiftness of the process, it is necessary that the same employees do the inventory every time.

We are sure that once you put these ideas into practice, a significant wave of positive change would come your way. You would notice reduced incidences of wastage, pilferage, and spoilage, which ultimately culminate into enhanced profitability. We hope you found this information practical and realistic. In our upcoming post about restaurant operations we would talk about variance analysis and product costing, stay tuned.

Cloud Accounting

Cloud accounting is fast becoming a necessary tool for small businesses. With the help of mobile phones and tablets, accessing your financial documents on the go can be achieved with cloud technology.

Despite the availability of these tools, only relatively few small business owners are using them.  If you’re one of those owners who are resistant to the concept of this technology, it’s probably the right time for you to overcome your fears.

Here are the most important reasons your small business should embrace cloud accounting technology:

1.   Easy collaboration with staff

With the advent of cloud accounting, accessing your financial data in a fixed location is becoming a thing of the past.  Cloud accounting lets you and other authorised users delve into the financial data of your company regardless of their location.

Since it’s not in a centralised location anymore, viewing your financial data is no longer restricted to the office.  If there are things that require your attention, you don’t have to go to your office to update them. You can take your business wherever you go.

2.   Better Cash Flow

It has been suggested that business owners who embrace cloud accounting and accept online payments get paid faster. The reason for this is that automating invoicing can improve cash flow; thereby, saving time in following up overdue invoices.  Some cloud accounting providers also offer simple financial management tools to reach customers wherever they are.  By doing this, payments are easily received.

3.   More accurate picture of overall financial

With cloud accounting you can easily review your numbers whenever and wherever you want to, you can quickly respond to any type of challenge.  With easy access to all the information, you have better decision-making capabilities.  As a result, you can conveniently keep track of your bottom line.

4.   More flexible

As the business evolves and grows, cloud accounting can grow along with it. This type of technology also allows you to utilise other relevant apps so that you can efficiently compete with other companies.

5.   Better backup

With cloud accounting, backing up your financial data is easy.  In case of a system crash, you can retrieve the data from the cloud storage client.  This ensures that you will not lose all your important financial info.

Since you can upload your financial documents, you can share them with your employees and co-workers, so they can have appropriate access to these relevant files.

6.   Better compete

Cloud accounting is cheap but efficient.  You can start to keep up with some big corporations. It gives you a voice in your niche allowing you to take your business to the next level. By using a remote bookkeeper, it can lower your business’ overall costs and it makes accounting and bookkeeping a lot simpler.

Cloud accounting gives any type of small business an effective way of competing with larger companies.  It is true that there is still a lot to learn about cloud technology, however, once you use it, you will realise the benefits in simplifying and securing your accounting processes.  Not only that, it allows you to remain competitive without having to pay more.

One challenging aspect of business is keeping the books up to date and getting it right.  A simple accounting mistake can seriously damage your business.

Many business owners rely on their accountants in helping their business comply with taxes, payroll, bookkeeping and other accounting issues.

Listed below are some of the accounting mistakes that you must avoid, if you do the accounts yourself, to prevent significant damage to your business.

1.       Not prioritising receivables

Undoubtedly, cash flow is the lifeblood of any business.  If you are not enough money coming in, you will find yourself going backwards or worse going under.

When an invoice is issued, a receivable is recorded, when the customer pays, the payment is applied and the invoice marked as paid.

Not monitoring who has paid will leave you in a situation where you’re unsure who truly owes you money.  After all, making the sale means nothing if you’re not being paid for it.

You need to regularly and systematically monitor who has debts and how old they are.  You also then need to regularly request payment when payment is late.

As a result of not properly managing receivables, you may ultimately suffer from high bad debts.

To help avoid this, you may consider investing in a cloud accounting and online payment system. They can automate processing receivables to help you get paid faster.

2.       Not keeping track of expenses

Expenses are a necessary part of any business, be it small, medium or large.  Unfortunately, many business owners find themselves overwhelmed when it comes to tracking down receipts and other accounting documents.

If you don’t keep supporting expense receipts properly, it can result in cash flow problems, accounting and tax issues.

But saving a receipt for every expense can be cumbersome.  This is one of the reasons many business owners today are using cloud accounting and remote bookkeeping organisations to help them in organising business expenses and recording them properly.

3.       Not keeping personal and business finances separate

Combining the two can put your business at extraordinary risk.  It’s a common mistake that can be easily avoided but there are many small business owners who are still using one account for both their personal and business finances.

This problem can easily get out of hand.  Plus, this issue can cause problems with the tax authorities.  To avoid it, you should unquestionably have separate bank accounts for your business and personal needs.  Keeping things separate ensures that you don’t confuse what belongs to the business and what belongs to you.

4.       Not seeking help from a professional

At first, it’s tempting to handle all accounting tasks on your own to try to save money.  But, when your business starts growing, not hiring a professional can be a very bad idea.

You may think that you’re saving money by doing your taxes on your own, but, the truth is that this mistake can cost you a lot, further down the road. You might be overpaying tax, which is as good as throwing money away or underpaying your tax bill, which can lead to penalties.

Having a qualified professional taking care of your accounts can save time and money. You can concentrate on your core business and it will take the stress out of accounting.

Small Business Bookkeeping UK

No doubt that as a small business owner you will want to know the headline figures but you may also have to do the bulk of the bookkeeping to keep costs down.

“How hard can bookkeeping be? I’ll just do it myself.”

This isn’t an unusual thought for some small business owners but the reality can be quite different.  Bookkeeping is not something you can simply pick up and do without any knowledge or planning but it can be made easier.

While doing it yourself may draw your attention away from core business, in the beginning it may be necessary so let’s look at 5 steps to make your bookkeeping easier.

1.   Educate yourself

Learning the basics of bookkeeping, knowing your balance sheet from your P&L, understanding the differences between profit and cash or knowing how to account for assets, taxes and other costs could help you avoid some potentially expensive and reputation damaging pitfalls.

Investing some time in thorough research or attending a basic course could save you money in the long run.

If you want to do it yourself it will take time to learn but it needs to be done right.

2.   Select the right system

Once you’ve grasped enough to feel comfortable you should choose the right system to help organise your accounting and produce some useful reporting that you can use to help run the rest of the business.

One basic option is a spreadsheet, the main benefit of this is that it’s likely to be free but will probably take more time to maintain, opens the possibility of formula errors, often provides less useful reports from which to make decisions.

Dedicated accounting systems are typically the way to go.  There are many to choose from and the benefits of each should be weighed against one another.

The main decision is whether to buy an out of the box software that will be installed on your computer/server or to utilise one of the number of growing cloud-based solutions.  The latter is usually available on a subscription and can be accessible at any time and from anywhere.

Each cloud accounting system has different features; however, continuing developments have meant that they can save you time, make mistakes less likely, provide valuable reports and help to manage your creditors and debtors.  The use of cloud software is on an upward trend and adoption is forecast to continue in future years.

Bookkeeping Processes are a key part of a simpler remote bookkeeping system

3.   Put a process in place

Once you have the knowledge and you have chosen a system you need to put a standard process in place and stick to it.  It will minimise the chance of errors if you ensure that transactions are processed consistently.

Within the process include standard reports that you would find useful to run the business, determine standard formats for sales invoices as well as customer communication plans when working to recover overdue debts.

It goes without saying (although I will say it) that business and personal expenses should be kept completely separately. Ensure that you keep all accounting documentation, receipts, invoices etc. so that they can be input into the system.  Some cloud accounting systems will allow you to attach a digital image to each transaction making later review easier.

4.   Keep up to date

Running your own books requires a reasonable time commitment.  You will need to keep up to date with the processing of all accounting documents but you will also need to keep up to date with changes in certain regulations.

You should aim to process transactions regularly but how often should this be? This really depends on what you want to achieve and on how many transactions you have but it should be regular enough that you are always aware at any given time how much money is in the bank, how much is due to come in and how much you need to pay out.  Sometimes this will mean processing throughout the day, every day or sometimes less frequently.  It should never be less than once a week for any business.

5.   Ask for support

If you do all of the bookkeeping yourself there’s no easy solution, it will require some hard work, time and effort.

If you want to spend your time concentrating on your business or you find that you’re growing and simply can’t dedicate enough time to maintaining your accounts or that your focus is being taken away from your core business then you should look to a professional provider for assistance.

At Sanay we can support your business by taking part or all of the process of your accounting and bookkeeping leaving you more time to concentrate on growing your business.  Asking a dedicated provider for assistance is a positive step in managing your accounts; you can grow your business without experiencing the growth in number of accounting transactions.  You can simply provide the documents and the specialist provider will take care of the rest, they can manage the whole process, provide informative reports and ensure all deadlines are met without you having to worry about it.  You accounts will be updated in real time and available to view 24 hours a day, 7 days a week, 365 days a year in the cloud.

Do you want to learn more about outsourcing your finance function to facilitate growth in your business? Schedule a free consultation today!

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