20th July 2020

It was announced in the Chancellor’s Summer Economic Statement on 8 July 2020 that the Government would be issuing a targeted reduced rate in VAT for some of the sectors most affected by the COVID-19 pandemic and consequent lockdown measures – hospitality and tourism.

As an urgent response to the crisis, the Government will allow VAT registered businesses to apply a temporary 5% reduced rate of VAT to certain supplies that relate to: hospitality; hotel and holiday accommodation; and admission to certain attractions. This temporary reduced rate will apply to supplies that are made between 15 July 2020 and 12 January 2021.

Alongside the announcement, detailed guidance was published (found here), which we have summarised below.

Hospitality

If you supply food and non-alcoholic beverages for consumption on your premises, such as a restaurant, bar, or café, you are currently still required to charge VAT at the standard rate of 20%. However, from 15 July 2020 until 12 January 2021, you will only need to charge 5% when you are making these supplies.

You will also be able to charge a reduced VAT rate on supplies of hot takeaway food and hot takeaway drinks. You can find more information about how these changes might apply to your business here.

Hotel and holiday accommodation

You will also benefit from the temporary reduced rate of VAT if you:

  • supply sleeping accommodation, such as a hotel or a similar establishment
  • make certain supplies of holiday accommodation
  • charge fees for caravan pitches and associated facilities
  • charge fees for tent pitches or camping facilities

More information about how these changes might apply to your business can be found here.

Admission to certain attractions

If you are a business that charges a fee for admission to certain attractions where the supplies are currently standard rated, then you will only need to charged the temporary reduced rate of VAT between 15 July 2020 and 12 January 2021.

However, if the fee you charge for admission is currently exempt, that will take precedence and your supplies will not qualify for the reduced rate.

More information about how these changes apply to your business can be found here.

The Flat Rate Scheme

If you are a small business that uses the Flat Rate Scheme in order to simplify your VAT calculations, then you should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT.

More information can be found here.

The Tour Operators Margin Scheme

If you are a business that buys-in and resells travel, accommodation, and certain other services, and you act in your own name, you may operate the Tour Operators Margin Scheme to simplify your calculations.

Further information about how the introduction of the temporary reduced rate of VAT will affect your calculations can be found here.

Accounting for supplies that straddle the temporary reduced rate

You will simply account for VAT at 5% for supplies made between 15 July 2020 and 12 January 2021 in most cases. However, there may be situations where you receive payments or issue invoices before 15 July 2020 for supplies that take place on or after 15 July 2020.

More information about this can be found here.

Commenting on the temporary cut in VAT during UNW’s recent VAT update webinar, Mark Hetherington, VAT partner at UNW said: “From a VAT perspective, the Chancellor has acted very quickly. On 20th March, he announced that any VAT payments falling due between 20 March and 30 June could be delayed, on an optional basis, until March 2021. The Government has estimated that the level of VAT payments that have been delayed comes in at around £38 billion. For people that were looking to defer their VAT, the VAT return for the relevant quarter had to be submitted as normal.

“For businesses that have deferred, you are expected to pay off the balance by 31 March 2021. We do expect HMRC to issue some statements of account early next year to remind people of the balance outstanding. There is no interest charged or penalties, provided the monies are paid before 31 March; however, you can make optional payments well in advance of that date.”

If you would like further guidance on this topic, please do not hesitate to contact one of our dedicated VAT specialists: Mark Hetherington, VAT Partner, on 0191 243 6073 or at markhetherington@unw.co.uk; or Ian Coulthard, VAT Senior Manager, on 0191 243 6017 or at iancoulthard@unw.co.uk.

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