As with most questions that we get asked at Accounts & Legal the answer to whether a Christmas Market Trader needs to charge VAT on their sales is “It Depends”. But what dictates whether you are obliged to charge VAT at your market stall this Christmas.
Do you make over £83k in revenue?
Whether you are sole trader or a limited company if the business turnsover £83k during the year you are obliged to register the business for VAT and in turn charge VAT on sales but you can reclaim VAT on many of the costs that you’ve incurred.
If the business turns over less that £83k, then you are not obliged to register for VAT and will not have to charge VAT on your sales, however, you will not be able to reclaim VAT on any costs that you have incurred bringing your products to market.
Are the Items you sell VATable?
We had a little look around our local Christmas market and whilst we were tempted into buying some German sausage, a Christmas Santa (for the office) and a round of mulled wine, we only found a few things that aren’t obliged to charge and here they are:
Babywear and Child ware – Any baby ware is 0% rated, as are children’s clothes and footwear. That means if you are planning on selling cosy little slippers for children you charge VAT 0% (no additional VAT to charge) and you can still reclaim any VAT you have suffered in bringing that product to market (pun intended).
Food & drink – food and drink is typically 0% rated but there are exceptions and unfortunately most of these exceptions were on sale at our Christmas market. Those items which are standard rated are alcoholic drinks, any confectionary, crisps or savoury snacks, hot takeaways, ice cream, soft drinks and mineral water. If you are selling any of the above you are likely to have to charge 20% VAT on these items, which includes your German wurst, mulled wine and even the Chrsitmas candy canes.
Most other items we saw at our local Christmas market were standard rated and would have had to charge VAT.
Once you’ve registered for VAT, what happens?
After registering for VAT the business is legally obliged to charge VAT on sales. VAT is charged at 0%, reduced rate at 5% or standard rated at 20% - with most items that you will find in a Christmas market are standard rated at 20% or 0% rated.
This means that you are going to have increase the amount you change your customers by a given percentage. Assuming that the items being sold are standard rated at 20%, if you are selling a Santa Clause for £10 you are going have to increase that price to £12 or (£10 + £2 VAT). Or if you’re selling a Christmas wreath for £25 that price is going to have to be increased to £30 (£25 + £5 VAT) – you get the idea. Take your target sales price multiply that number by 1.2 (£price x 1.2 = price + VAT) and you’ve got your price plus VAT, in the case of our Santa £10 x 1.2 = £12 price tag.
What happens to the VAT I have charged?
Once you have charged the VAT this then becomes something the business owes to the VATman. You can opt to pay down this liability once a quarter or monthly depending on your preference. Get in touch with one of our team to hear how we can help you on that one.