From The Telegraph:
Greggs' shares fell 4pc to 528p on Thursday morning, a day after the Treasury announced in the Budget that: "VAT will also apply, to the extent that it does not already do so, to the sale of hot food, cold food consumed on the supplier’s premises, sports drinks and holiday caravans, and to the rental of hairdressers’ chairs. This will have effect from 1 October 2012."
Greggs, which has more outlets in Britain than any other takeaway company, sells 140m sausage rolls every year. It has successfully argued – following a lengthy and complex VAT tribunal – that the products are baked in store, and just happen to be hot. As a result its hot pastry products have been free of VAT.
A source at the Treasury said: "We want to remove all these anomalies. This is a big step towards simplifying the VAT system." They added that anything that a normal consumer would consider hot, would be deemed by the Treasury to be so and subject to the tax. Most tax experts believe the definition of "hot" is above room temperature.
It is likely that companies will respond by trying to pass on the higher costs – an extra 20pc on these products – to their customers. Though some experts said that it would be difficult when shoppers were watching their pennies. Lorraine Parkin, head of indirect tax at Grant Thornton, said: "At a time when retailers are operating in a very challenging economic environment, this will further reduce their profits unless they are able to pass the tax increase on to their customers.
But... but... aren't investors being completely irrational here? Aren't the politicians always telling us that VAT doesn't affect producers, as the consumer pays the tax? Surely they wouldn't be lying to us, and surely politicians know a lot more about the hot pastie business than mere bakers and pie-eaters?
So why does a VAT increase affect Greggs' profits or share price? Maybe somebody could point out the same to Ms Parkin?
Education in Oz
1 minute ago
7 comments:
So, what I woukd do is:
1) sell cold pasties at £0.x.
2) Charge 1p +VAT to heat them up.
How hard can it be?
Because they've been avoiding paying VAT by putting their reheated (not baked) sausage rolls on non heated shelves to cool down slowly, oh so very slowly, before they are sold. Now they'll have to pay VAT. So they'll chage it and upset their impoverished customers.
L, that puzzled us here as well. The VAT rule used to be that food which has to be heated does not count as 'hot', so freshly baked bread might be hot, but that's inherent in the process of making bread (so bread is still VAT zero-rated).
Conversely, if a café takes two slices of cold bread and pops them in the toaster for you, they are selling heated/hot food (VAT-able).
So Greggs ought to wait until their delicious pasties have cooled down to room temperature, sell them zero-rated and have a micro wave oven on a table in which people can heat up their pasties again. Or possibly heat their restaurants to about 200 degrees C and sell pasties at 'room temperature'?
So a pastie must be zero rated as'it has to be hot' to make it? Bizarre.
L, those are the VAT rules. See also cakes-vs-biscuits.
Now, if Dr Evil is correct and the wholesome pasties were allowed to cool, delivered to shops and then heated up again, that is a different kettle of tasty filling...
VAT is also now chargeable on alterations (not repairs) to listed buildings, which were previously zero rated. After years of justifying this daftness by waffling on about "lightening the load of those who care for our nation's historic buildings", they have now made alterations as well as repairs liable to full rate VAT, rather than doing the opposite, saying that having alterations zero-rated "encouraged people to alter rather than repair their historic buildings". It's only taken them about thirty years to notice that.
B, that's another good example. In case anybody is wondering what the difference is (or was), HMRC do a nice explanation here.
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