Major VAT Announcement 24 September 2020

The Chancellor has given a statement outlining new and revised measures which are being introduced to assist businesses through the ongoing COVID-19 outbreak.

Extension to temporary VAT reduced rate for hospitality and tourism sector

In July, the Government announced a temporary VAT cut for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions which was to apply in the UK from 15 July 2020 until 12 January 2021. This measure aims to support businesses and jobs in the hospitality and tourism sector. In recognition of the extra assistance which establishments such as restaurants, pubs, bars and cafés to deal with the effects of the ongoing restrictions, this reduction has been extended until 31 March 2021.

HMRC’s Public Notice 709/1 discusses catering and take away food and states that the reduced rate of 5% applies to:

  • 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

However, businesses should bear in mind that any supplies of food and drink that are supplied as part of a supply of catering services for consumption off-premises have always been, and continue to be, standard rated.

What Does This Mean for UK Businesses?

For any sales of the type outlined above made between 15 July 2020 and 31 March 2021, the reduced rate of VAT (5%) must be charged. For taxpayers who use the VAT fraction to work out the VAT element of any VAT inclusive income received, they must apply the new fraction of 1/21 to calculate VAT due.

Those taxpayers which use software to record their sales and calculate VAT should ensure that the new reduced rate continues to be automatically applied to sales affected by the new rate until the end of the new extended period.

VAT Deferral Repayments

Earlier this year, the Chancellor announced that businesses could defer VAT payments due between 20 March and 30 June 2020. Businesses taking up this option were given until the end of the financial year (31 March 2021) to clear any VAT due which is not paid in the suspension period.

Recognising the ongoing cashflow issues which many businesses are experiencing, today it has been announced that businesses will be given more time to pay. Rather than paying a lump sum by 31 March 2021, businesses which deferred their VAT payments will be given the option to split the amount due into 11 smaller, interest-free payments during the 2020/21 financial year. Whilst no Guidance has yet been published on this point and the Chancellor’s announcement did not clarify, this probably means 11 months from the 31st March 2021. However, we will update this piece when any Guidance is published which sheds some light on this matter.

To discuss any of the announcements and the potential impact on your business, please do not hesitate to contact Constable VAT.

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.