Tax is one thing that has come to stay with us today. Either as a low-income or high-income earner, you will pay your tax in one way or another. You will be surprised you pay tax on a ridiculous thing like your snack. Value Added Tax is a Consumption tax levied on goods and services at each stage of the supply chain where value is.
Does this tax apply to the most popular beverage on the planet; coffee? Or is it among the goods listed as ‘zero-rated?’ What are zero-rated goods? How do taxes even work?
This article shall provide answers to the above questions and those related to them.
Taxes
Taxation and fees on things we consume are fundamental ways for countries to generate public revenues to finance investments in infrastructure, human capital, and services to business owners and all citizens at large. It also plays a significant role in making growth sustainable and equitable.
Governments try as much as possible to ensure the tax system is fair and equitable by providing relative taxation of the rich and poor, formal and informal sectors, corporate and individual taxpayers, labour and investment income, cities and rural areas, and the older and younger generations.
Types of Tax
There are different types of Taxes, and they are here to stay. It is only better for us to know how they work. With your knowledge of different kinds of tax, you may change your approach by using other tax preparation software or getting professional help.
The types of tax are;
Consumption Tax
Consumption tax is a tax paid on the money spent, not on the one earned. Consumption taxes are usually indirect, such as excise tax on specific goods like gasoline or alcohol. Another one is sales taxes which governments use to raise revenue.
Progressive Tax
This type of tax depends on a taxpayer’s ability to pay. In a progressive tax system like the US federal income tax, wealthy individuals tend to pay more tax than the middle class, and the middle class pays more than the working class.
Regressive Tax
A regressive tax is the opposite of a progressive tax. The essence of imposing this tax is that the tax rate decreases with the increase of a taxpayer’s income. The reason is that it is a flat tax, and the effect would be felt deeply by people with lower incomes than those with higher incomes.
Proportional Tax
A proportion tax is a type of tax that levies the same amount of tax on everyone, irrespective of income. However, the effect would not be the same as people do not earn in the same ratio.
Property Tax
Property tax is the tax you pay on land, homes, or commercial real estate. So, when you think of acquiring properties like these, think about the taxes on them as well. Unless you qualify for exemption from property tax for seniors, disabled residents, or veterans, you keep paying tax as long as you use the property.
Income Tax
This type of tax taxes the income you earn. So, there are different tax rates for different income brackets.
Payroll Tax
This tax covers your contribution to Social Security, Medicare, disability and survivor benefits, and federal unemployment benefits.
Inheritance/Estate Tax
The estate tax is paid from the deceased’s net worth, while the heir of the deceased pays the Inheritance tax.
Capital Gains Tax
After investments sell and capital gains are at hand, this tax levies the seller.
VAT
VAT is also known as Ad Valorem Tax or goods and services tax. It is a tax on the price of a product or service at each stage of production, distribution, or sale to the final retail purchase.
If you get to countries where they use VAT, you may not even notice you are paying tax because it is in the prices of the products.
VAT On Food 2022
Food and drinks are usually standard rated for VAT when provided as part of a catering service; so are meals and beverages served and consumed hot in a restaurant or Cafe. VAT on food catering and drinks in 2022 is placed at a 20% standard rate after it must have met HMRC’s criteria for catering.
VAT On Coffee UK
In the new guide for small business owners of the UK who own restaurants, cafes, caterers and bakers whose businesses are already in for registration for VAT, coffee beans are under zero-rated products. However, hot drinks are always standard rated at 20%
Is VAT Charged on Coffee Beans?
VAT is at 0% on zero-rated products like coffee beans.
FAQs
What Products do not Include VAT?
Products and services that are considered necessary are often zero-rated. Examples include certain foods and beverages, prescription medications, water, certain foods beverages and sewage services.
Do Coffee Beans Have VAT in the UK?
Coffee beans are placed on zero-rated products in the newest guide for small business owners.
Do Coffee Beans Have Nutritional Value?
Coffee beans contain potent antioxidants, with the leading one being chlorogenic acids. Chlorogenic acids can help cure inflammation, reduce the risk of diabetes, reduce weight, and may also fight cancer.
Is There VAT on Milkshakes?
Milk and extracts and preparations of milk products are under zero rate of VAT.
Is There VAT on Tea?
Tea also belongs to the family of cocoa and coffee, and so it is zero-rated as long as it is not hot tea. When it is a readily prepared hot beverage, it is subject to VAT at the standard rate.
Is There VAT on Jams?
Depending on how the jam is used, it can be zero-rated or standard-rated. Typically Jams and preserves are zero-rated, but when the hole is on hot toast, it becomes standard rated.
VAT on Ice Coffee?
If consumed on the vendor’s premises, VAT applies because it counts as a sale under catering. But when not taken on the vendor’s premises, it is zero-rated.
VAT on Pastries?
If cold, pastries are zero-rated. But when they are kept warm in a heated cabinet, they become standard rated.
VAT on Chocolate Brownies?
Brownies have the same privileges as cakes. Therefore, zero-rated.
VAT on Cold Takeaway Food?
Cold takeaway foods are zero-rated unless they are under the exemption list. Cold takeaway foods under the exemption list include; orange juice, ice cream, and other confectionery are standard rated.
VAT on Service Charge?
As a VAT registered trader, you must charge VAT. Optimal service charges do not require VAT, but Compulsory service charges do.
Final Words
As a small business owner, it is only suitable for you to know how tax works in your country at the federal and state level. Knowing how tax works will help you in learning how to charge VAT on your products and services without running at a loss and without cheating your customers. Familiarise yourself with the tricky exemptions of zero and standard-rated goods. One of the tricky ones is coffee, which is zero-rated as beans but is standard rated as a hot cup of beverage.
Also, Note when the guidelines are adjusted and reviewed so that you can change your prices too.
