Teashop ‘forced to close’ by VAT rules

A man who owns a small tea shop has urged the Chancellor to change VAT rules in the Budget.

Steve Corrick said current tax rules forced him to close his Somerset cafe one day a week to avoid making too much money.

The situation “means we’re not employing people today, we’re not servicing the local community, which is crazy,” he said.

The former accountant calculated that opening every day would mean businesses would only have to pay VAT, but would actually be worse off than if they had less income.

Is he right? How many other people are falling into the same tax trap?

Mr Corrick and his partner Linda took over the tea shop only in the summer.

He had retired from a successful career as an accountant and so was interested in the small company’s books.

He said he quickly discovered a problem.

Uxbridge Tea Shops are in danger of making too much money.

Small companies with revenue of less than £90,000 are exempt from charging VAT to their customers. But the rules state that once that threshold is exceeded, sales tax must be collected on every transaction.

Mr. Corik said so.

“If we take £90,000 we don’t pay tax. But if we take £1 more we have to pay £15,000 of VAT on the whole shipment.”

“They call it ‘cliff edge,’ which is crazy.”

The teahouse is located in a medieval building that served as an almshouse for centuries.

A place of charity. But Mr. Corik didn’t want to do it in vain.

“If we had accepted more than £90,000 we would actually be worse off,” he explained.

Of course, it’s impossible for a café to make just one pound more than the limit.

So, I want to know, how much more do they need to pay to make it worth paying the 20% VAT?

“We have to spend £140,000 a year,” he explained.

“To make more money, we have to stay open longer, which means more wages, more energy, more maintenance.

“It’s only £140,000 before we can really start making more money.”

To recoup the taxes paid, cafes have to make more money, which increases costs. Profit margins are low, so to make enough extra profit to pay VAT, the business has to charge a further £50,000.

No, this problem doesn’t just affect one tea shop in Somerset.

In a recent survey, the Federation of Small Businesses (FSB) found that 38% of companies with a turnover of around £90,000 cited VAT regulations as a major barrier to growth.

“They don’t want to go over that threshold and suddenly have to pay a lot of tax,” explained Sam Holliday, a Somerset organizer at the Financial Stability Board.

The FSB calculated that if the VAT threshold were to increase year on year with inflation, it would now be over £120,000 rather than £90,000.

“This has become a major issue for many small companies.”

New Labor chancellor Rachel Reeves has plenty of people to offer advice on how to help businesses grow.

In a small medieval teahouse in Somerset, Steve Corrick has a claim of his own.

“Fix this problem or business will be hampered.”