VAT reduction for hospitality and tourism sectors

In the Chancellor’s Summer Economic Update he announced his plan to reduce the rate of VAT for those businesses within the hospitality and tourism sector. The rate of VAT has reduced from 20% to 5% from 15 July 2020 to 12 January 2021.

Who does this apply to?

This reduction in VAT is intended to boost trade immediately for the hospitality and tourism sector and is likely to affect hotels, B&B’s, cafes, pubs, restaurants, cinemas, zoos and theme parks.

What will the reduction apply to?

The reduced rate of VAT will apply to:

• Hot/cold food and non-alcoholic beverages for consumption on the business premises. Cold takeaway food continues to be subject to VAT at 20% or 0% under the existing rules.
• Hot takeaway food and hot takeaway non-alcoholic drinks.
• Sleeping accommodation such as hotels and similar establishments, holiday accommodation, caravan and tent pitch fees.
• Admissions to theatres, shows, fairs, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities. If a business charges admission fees that are currently exempt for VAT then that will take precedence and the admission will not qualify for the reduced rate. The reduced rate does not apply to admission to sporting events!

How does this reduction work?

From 15 July 2020, all eligible businesses should charge the reduced rate of VAT (5%) on takings of supplies made of the goods and services listed above, and on issued invoices, until 12 January 2021.

Businesses will need to be careful around where goods and services were supplied prior to 15 July 2020 but invoiced after 15 July 2020, and vice versa!

For example, if a business has received a payment or deposit before 15 July 2020 but supplies the goods or services after 15 July 2020, then the business can choose to charge and account for VAT at 5% by issuing a credit note within 45 days of the rate change.

What does this mean for those on the Flat Rate VAT Scheme?

HMRC have updated the flat rate percentages to take account of the new reduced rate for VAT.

If you have registered on the Flat Rate VAT Scheme on the following sectors then your rates have been changed as follows:

• Catering 4.5% (reduced from 12.5%)
• Hotels 0% (reduced from 10.5%)
• Pubs 1% (reduced from 6.5%)

VAT rules in respect of some of these sectors were already complex and this change is likely to prove an added headache for businesses, especially where the dates may not match their VAT quarter end dates. HMRC have updated their guidance on the application of the change in areas affected by the rate reduction. These details can be found on the following links:

• VAT: reduced rate for hospitality, holiday accommodation and attractions
• Catering, takeaway food
• Hotels and holiday accommodation
• Food products
• Tour Operators Margin Scheme
• Land and Property

We are here to support your business, if you have any concerns please call us or email Mark or Andrew.

The content in this blog is correct as at 07/08/2020. See terms and conditions.