Does the Temporary Reduced Rate Apply to Me?

On 8 July 2020, the government announced that it would introduce a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions. This cut in the VAT rate from the standard rate of 20% is effective from 15 July 2020 to 12 January 2021.

Since the introduction of this temporary reduced rate, we have been asked many questions and there is some confusion as to when it actually applies. This piece discusses the Guidance as it stands and aims to assist taxpayers in identifying the key points to consider.

HMRC Guidance

Revenue & Customs Brief 10 (2020) identifies that the following supplies benefit from the temporary reduced rate:

  • food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs
  • hot takeaway food and hot takeaway non-alcoholic beverages

Public Notice 709/1 has been updated to reflect the introduction of the temporary reduced rate and sheds further light on the question of to what the reduced rate applies:

  • hot and cold food for consumption on the premises on which they are supplied
  • hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied
  • hot takeaway food for consumption off the premises on which they are supplied
  • hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied

It does not seem that the temporary reduction is intended to apply to sales of cold drinks or confectionery/snacks which are sold for consumption off the premises. Therefore, sales of cans and bottles of cold drink supplied on a takeaway basis should continue to be treated as standard rated supplies. Given the difference in VAT treatment of these items depending on whether they are sold for consumption on or off the premises, it is important to give some consideration to what constitutes “takeaway” for VAT purposes.

When Is An Item for Consumption On/Off Premises?

Public Notice 709/1 also sheds some light on this matter:

“3.1 Why you need to work out the ‘premises’

You must always charge VAT at the standard rate (or the temporary reduced rate) if you make a supply of food and drink for consumption on the premises that it’s supplied in…

For the purposes of Group 1 of Schedule 8 of the VAT Act, ‘premises’ are the areas occupied by the food retailer or, any area set aside for the consumption of food by the food retailers’ customers, whether or not the area may also be used by the customers of other food retailers…

The definition of premises does not include areas with tables and chairs provided for general use by members of the public who are not customers of one or more food retailer.”

Therefore, anything sold which is intended to be consumed within the premises where it is sold, or in a designated seating area for the customers of the premises, benefits from the reduced rate unless that product is alcoholic. However, as discussed above, cold confectionery and snacks alongside cold beverages which are sold for consumption away from the premises still need to be treated as taxable at the standard rate of 20%.

Vending Machines

Vending machines can be located almost anywhere. In order to identify whether supplies made from these machines are eligible for reduced rating it is important to establish if products available in that particular machine are sold for consumption on the premises or not. As mentioned above, premises indicates a specific allocated seating area for consumption of the dispensed product.

HMRC’s Internal Guidance VFOOD5160 clarifies the position regarding products sold from vending machines:

“All supplies of food and drink from vending machines sited in canteens and restaurant-type areas are standard-rated as supplies to be consumed on the premises where they have been supplied. An apportionment will be allowed if the food seller can produce evidence to show that a proportion of the items of cold food (that would be eligible for zero-rating) is taken-away from the canteen / restaurant premises.

All supplies from machines sited in thoroughfares and areas not designated for the consumption of food follow the liability of the product sold.”

This indicates that HMRC do not regard sales from vending machines located in corridors and thoroughfares as for “consumption on the premises”, this will be the case even if a vending machine is located in an office building but the staff take the products back to their desks, or a communal seating area, to consume. However, if a vending machine is located in a canteen area then the reduced rate is likely to be applicable to the majority of items in the machine.

Catering Packages

HMRC have previously clarified that where food and drink are supplied as part of a composite supply of catering services or hospitality, they form part of one overall standard rated supply.

This means that it is important to consider whether supplies made are single, composite supplies of catering services, to which the supply of foodstuff and drinks is ancillary. Alternatively, they may represent multiple supplies which are distinct, but which attract different VAT rates. This is a subjective question and must be considered on a case by case basis with all facts in mind – this is an exercise with which Constable VAT is well placed to help.

To discuss the way in which the temporary reduced rate may impact your business, please do not hesitate to contact Constable VAT – we will be happy to assist.

This article is intended to give general guidance only and cannot be relied on in respect of any individual business. The facts may change as more information on the application of the reduced rate in particular circumstances is issued by HMRC. If you require advice specific to your business please contact Constable VAT or your usual adviser.