Convenience Store Accounting: VAT, Stock, Cash and Payroll

A convenience store is a thin margin business taking real cash across two VAT rates all day. Three routines keep it under control: a daily reconciliation, a correctly coded till, and a stock count you actually do. Everything else follows from those.

The daily reconciliation

It takes a few minutes and it is the difference between finding a problem the next morning and finding it nine months later.

1. Take the Z reading or the EPOS daily summary, split by VAT rate.
2. Count and bank the cash, net of the float and any paid outs.
3. Match the card settlement, remembering it arrives a day or two later and net of the merchant fee.
4. Cash banked plus card settlement plus paid outs should equal recorded sales.
5. Post whatever is left as a till variance, rather than absorbing it.

Small variances are normal in a cash business. What matters is that they are recorded and the trend is watched. A steady few pounds a day is housekeeping. A variance that grows is information, and it is worth acting on while it is still small.

What comes out of sales, and what does not

Paid outs, staff purchases, owner drawings from the till and float movements all have to come out of the takings figure properly rather than disappearing into it. The lottery and PayPoint floats are not your sales. Supplier payments made from the till are purchases, not reductions in sales. And an owner taking cash for personal use is drawings, which has to be recorded if the accounts are going to make sense.

Mixed VAT rates in one shop

A convenience store sells across both main rates at the same counter, which is why the product file in the till is the foundation of every VAT return you will ever file.

The borderline cases are the expensive ones: cakes against biscuits, cold sandwiches against hot, and food sold to be eaten in rather than taken away. If a shop adds a food to go counter, the VAT position of the shop changes and so does the choice of retail scheme.

Choosing a VAT retail scheme

The scheme follows what your tills can do, not how big you are. These are HMRC's standard retail schemes with their turnover limits, which HMRC measures on retail takings net of VAT.

For almost every independent shop the point of sale scheme is both the simplest and the most accurate, provided the product file is coded correctly. Apportionment and direct calculation estimate the split instead, and neither can be used for catering, so a shop with a hot food counter needs that taken into account. Registration itself is required once taxable turnover passes £90,000 in any rolling twelve months, or if you expect to pass it within thirty days.

Stock and shrinkage

Stock is the largest number on a shop's balance sheet and the least often counted. A proper count at the year end, valued at cost, is what makes the gross margin real. Between counts, watch the gross margin by department: a margin that slips two points with no price change is usually telling you about wastage, shrinkage or a supplier increase that never made it to the shelf edge.

Three things to separate rather than lump together. Wastage on fresh produce and short dated lines, which is a cost of doing business and worth measuring. Shrinkage from theft or error, which is worth knowing about. And own consumption by the owner and staff, which has to come out of purchases rather than sitting in cost of sales.

Suppliers, invoices and rebates

Match delivery notes to invoices and invoices to statements, every week rather than every quarter. Chase credits for short deliveries and damaged stock while the paperwork still exists.

Symbol group and wholesaler statements bundle several things together and need unpicking: promotional allowances, retrospective rebates, marketing contributions, duty and deposit charges. Rebates in particular have to land in the right period, because a rebate for a year recognised in the following year moves profit between two sets of accounts.

Payroll, and the percentage that matters

Payroll is usually the second largest cost after stock. Payslips and real time information submissions each pay run, National Minimum Wage checked across the age bands as staff have birthdays, holiday pay calculated properly for part time and variable hours staff, and auto enrolment pensions with every new starter assessed.

The figure to read every month is the wage percentage against sales, alongside the gross margin. Those two numbers, tracked monthly and by site if you have more than one, tell you more about the health of a shop than the year end accounts will.

Year end

From reconciled daily records, the year end is a summary rather than a rebuild. Statutory accounts and a Corporation Tax return for a company, or the self employment pages for a sole trader or partnership, with capital allowances claimed on shop fit, chillers, shelving and equipment. Our accountants for convenience stores page sets out how we work with shops through the year rather than once at the end of it.