Do you run a busy cafe or restaurant? Or perhaps contemplating starting an F&B business or purchasing an existing one?
An F&B business owner faces many challenges, such as, ensuring that food prepared and served is of high quality, keeping track of inventory and ordering supplies in time, ensuring that all overheads are covered, marketing the business successfully, managing staff, attending to customers with discerning taste buds, contending with food handling regulations and council permits, just to name a few. To add to that mix, there are legal and taxation compliance aspects to contend with as well!
Here are 3 challenges from a financial and taxation perspective:
GST-Free Food Items
A common mistake made by F&B business owners is claiming refunds for GST credits on food supplies that are GST-free.
Some examples of GST-free foods are:
- bread and bread rolls without a sweet coating (such as icing) or filling – a glaze is not considered a sweet coating
- cooking ingredients, such as flour, sugar, pre-mixes and cake mixes
- fats and oils for cooking
- unflavoured milk, cream, cheese and eggs
- spices, sauces and condiments
- bottled drinking water
- fruit or vegetable juice (of at least 90% by volume of juice of fruit or vegetables)
- tea and coffee (unless ready-to-drink)
- baby food and infant formula (for children under 12 months of age)
- all meats for human consumption (except prepared meals or savoury snacks)
- fruit, vegetables, fish and soup (fresh, frozen, dried, canned or packaged)
- spreads for bread (such as honey, jam and peanut butter)
- breakfast cereals.
Even though a particular food item appears in the GST-free list, it may still be subject to GST under one of the taxable rules. For example, bread rolls are GST-free unless they are sold in a restaurant. Always check ATO's taxable food lists when working out the GST status of a food item, and ensure that you do not claim refunds for GST credits by coding 10% GST on GST-free purchases or charge GST on GST-free food. Keeping receipts and ensuring that your bookkeeping records tally with the receipts also goes a long way in the event of a GST audit.
Over the course of the last financial year, the ATO has conducted approximately 11,000 cash business audits. It noted that seven out of 10 were forced to increase the amount of tax they paid.
Some of the options being explored by the Black Economy Taskforce include:
- the possibility that Australians would no longer be able to receive wages in cash
- industries classified as being at "high risk" of illegally taking secret cash-in-hand payments including cafes and restaurants could be subject to a minimum rate of tax, which they could claim a refund on if they can prove to the tax man that they should be paying a lower rate.
To avoid penalties in the event of a cash business audit, ensure that all cash transactions are properly recorded in your books. To put it simply, keeping cash transactions off the books to avoid taxes is tax evasion.
Paying the Right Salaries
While keeping a tight watch on the bottomline is a must for every successful business owner, cutting costs by underpaying staff isn't one of the options. Ensuring the right level of remuneration for your staff not only helps to keep staff happy and motivated, but also keeps the Fair Work Ombudsman away! Check the Hospitality Industry General Award Rates to ensure that your business is compliant!
One of our firm's partners has over 15 years of hospitality experience. Therefore, she's familiar with the changes going on in the industry, standard KPIs and most importantly, what NOT to do when running an F&B business.
If you are thinking of starting an F&B business or purchasing a cafe, or wondering how we can assist you with the accounting, bookkeeping or taxation aspects of your existing F&B business, we offer a complimentary 30-minute discussion at either one of our offices or on-site at your business premises. Contact us today to find out how we can assist you.