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Floyd on finance and the unfair VAT system

23 February 2006

Short of a book to read, I recently revisited Keith Floyd's first stab at an autobiography, Floyd in the Soup. Besides being a lively read it's also a useful reminder of some of the pitfalls of running a restaurant.

Floyd's various eating places in Bristol date to the beginning of the eighties, but most of his travails will resonate with anyone involved in the industry today. It's a passionate piece of work and there are plenty of rants relating to the state of British food and how it might be improved.

Among these rants are the proposals that Floyd himself should have been appointed minister for tourism and, more seriously, an attack on the injustice of the VAT system as it applies to restaurants.

It probably doesn't occur to most customers that 17.5% of their bill is a tax-gathering exercise; and it's less likely again that they register that the restaurant is able to reclaim only a fraction of that - the reason being that there's no VAT on most of the ingredients they use.

The problem is that the restaurant trade is not now profitable enough to encourage growth. This is unfortunate in light of the sector's increasing importance to the economy and in particular to tourism.

This stagnation could perhaps be rectified with a significant extension of the flat scheme (which currently helps only those with a turnover of less than £150,000 excluding VAT) and a reduction from the current 12% rate that accompanies the system.

And if this could be coupled with a lower VAT rate for those who use fresh and local products, it could also be an incentive to quality, not dissimilar to the suggestion Tom Allchurch made recently in this space. With the encouragement these breaks would give to entrepreneurs considering entering the industry, I doubt the extra relief would make much overall difference to the treasury's coffers.

Seems a sensible and logical step to me - which means there's probably more chance of Keith Floyd being appointed minister for tourism.

Over to you… Should VAT be reformed to encourage growth?

Raymond Patterson, chef-proprietor, Patterson's, London "Definitely, it's such a pain. Reforming the VAT system would give people more scope to eat food of a good standard. You don't pay VAT at the supermarket, so why should it apply to restaurants? We include VAT in our prices. They're not over the top, but I would prefer to be able to give customers good value."

Richard Shepherd, owner, Langan's group of restaurants "I think VAT should be reformed to the extent that it should operate at different levels, but I don't see why the restaurant and catering industry should be treated as a special case. Every business could have the same view that its VAT should be reduced, so what makes this industry a special case?"

Andy Morris, general manager, Three Fishes, Mitton, Lancashire "I think we could all benefit from a more lenient system. It would encourage and benefit employers and employees. The overall structure of the industry could then change, and overheads could be reduced and balanced. More money would then be available for investment within businesses, which can only be a good thing."

Nick de Basterrechea, owner, Hardy's, London "With the congestion charge taking away a quarter of a million pounds of our business, there needs to be some concessions. If the powers that be want London to exist as a city, one way to do that is to reduce the VAT on cooked food. We as restaurateurs need to work together for a change. So too HM Revenue & Customs."

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