You can pay heavy price for failing to get Vat rates right

'There are always customers who absolutely appreciate premium quality, go out of their way to find it and will pay a premium price.' Stock Image: Getty Images/Caiaimage
‘There are always customers who absolutely appreciate premium quality, go out of their way to find it and will pay a premium price.’ Stock Image: Getty Images/Caiaimage

QI plan to sell a product into the retail sector, but I am confused about Vat rates when calculating the retail price. Can you advise me?

A This is a tricky area and one that you have to be extraordinarily careful with. You certainly can’t guess the Vat rate based on some assumptions, as each product needs to be assessed in its own right.

The first step is to visit On their site, they list all of the Vat rates for general products which will give you a good indication.

What I have found though, that in more recent times and as more unusual products hit the market, there can be some confusion and the same rules don’t necessarily apply to everything.

As a general rule, every day food products like bread and milk, which one needs to live on, are zero rate of Vat, whereas those that are classified as a luxury could be either 13.5pc or 23pc. For cafes, restaurants, there is a different rate of 9pc.

The only way you can be absolutely sure, if your product doesn’t appear on one of Revenue lists, is to email them, giving a description of the product and let them come back to you with a specific answer. Keep their response on file.

Sometimes, early-stage manufacturers get confused when Vat is mentioned – they think it refers to Vat for their own business, for which many are not eligible for yet. What we are talking about is Vat on the retail price. To build a successful price model, you need to know exactly what retail Vat applies to your product. Getting this wrong could damage your ability to sell your product. Getting your accountant involved in this early stage is the best advice I can give.

QI am planning to produce a super-premium range of jams and marmalades that will retail for approximately €15 a jar. I hope to sell on the international market and at airports, etc. Is there any advice that you can give me?

A I have no doubt that these products will be amazing from the list of ingredients you have given me in your email and with your own background as a chef. What I am less certain about is whether you will be able to sell enough to make it commercially viable.

There are always customers who absolutely appreciate premium quality, go out of their way to find it and will pay a premium price.

There are ways to narrow down the probability of success. Start by setting out a clear objective of what you want from the business. Do you need this business to pay a salary? Are you happy if it contributes only a modest salary on an annual basis? Have you got another income source?

Next you should contact The Thinking House at Bord Bia, which have exceptional food research capabilities through their library/research department. They may be able to show you other similar products, and if you are lucky, even to put a value on the size of the sector.

You should also try and engage with store owners and trade buyers within the sectors you are targeting. They would be a good source of feedback and they should also be able to give you an indication of how many jars you could possibly sell in the space of a week or month.

I would go so far as suggesting that you search for some speciality retailers around the world at the higher end of the market, and drop them an email or give them a call. The more research you do, the greater clarity you will get.

Finally, do make sure that you familiarise yourself with the margin expectations and distribution costs for the channels you intend to supply. You could find that your profitability disappears very quickly once all of these are taken into account.

I would be happy to hear from you again once you have conducted your research, so feel free to come back to me.

Indo Business

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