The Chancellor made some important announcements regarding VAT in his ‘A Plan for Jobs’ Speech earlier today. We have summarised these here and will issue updates over the next few days as HMRC release guidance and the detail becomes clearer.
1. Hospitality VAT Reduction
The Government has announced a temporary VAT cut for food and non-alcoholic drinks which will apply in the UK from 15 July 2020 until 12 January 2021. This measure aims to support businesses and jobs in the hospitality sector. During these dates, the reduced rate (5%) of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK.
HMRC has provided some clarity in its updated Public Notice 709/1 – the reduced rate will apply 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, any supplies of food and drink that are supplied as part of a supply of catering services for consumption off-premises remain standard rated.
2. What Does This Mean for UK Hospitality Businesses?
For any sales of the type outlined above made between 15 July 2020 and 12 January 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 rate is being automatically applied to sales affected by the new rate in order to prevent overpaying VAT.
3. “Eat Out to Help Out”
The Chancellor also outlined an “Eat Out to Help Out” scheme, this will entitle every diner to a 50% discount of up to £10 per head on their meal, at any participating restaurant, café, pub or other eligible food service establishment.
The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal (including on non-alcoholic drinks) for the entire month of August 2020 across the UK. Participating establishments will be fully reimbursed for the 50% discount.
HMRC has issued further guidance on the ‘eat out to help out’ scheme. In terms of accounting for VAT this guidance makes clear that VAT is due on the full value of supplies made under the scheme. The relevant section of the guidance states:
You’ll still need to pay VAT based on the full amount of your customer’s bill before the scheme discount is applied. This amount needs to be reflected in the correct VAT return for the period the transaction took place.
If your point of sale system does not allow you to account for VAT accurately under this scheme, you can manually adjust your VAT account after the sale.
If you cannot include the adjustment in the period the transaction took place, you should estimate the VAT and you must account for any difference in your next VAT return.
The payment you receive will be treated as taxable income.”
If you need any help on this or any other VAT matter please contact us.
4. Accommodation and Attractions VAT Reduction
As well as the measures regarding the hospitality sector such as cafes and restaurants, the Government has also announced a temporary VAT reduction for accommodation and attractions. The rate applicable to this sector will also be reduced from 20% to 5%. This reduction will also have effect from 15 July 2020 until 12 January 2021.
HMRC has now released some guidance around what it considers to be an “attraction” for the purposes of the temporary VAT reduction for accommodation and attractions. The Guidance can be read in full here. The list includes; shows, theatres and circuses included alongside cinemas and private zoos. There is also an associated Revenue & Customs Brief which may be read here.
It has also updated its Guidance on Hotels and Accommodation to reflect the changes, clarifying that the temporary reduced rate of VAT should be applied to supplies of:
- provision of sleeping accommodation in:
- boarding houses and similar establishments
- grant of a license to occupy holiday accommodation and charges for:
- seasonal pitches for caravans – including supplies of facilities provided in relation to the occupation of the pitches
- pitches for tents and camping facilities
The Guidance is found in Public Notice 709/3.
To discuss any of the announcements and the potential impact on your business, please do not hesitate to contact Constable VAT. We will be keeping abreast of all of guidance as it comes out and will do our best to update this coverage to reflect this. However, if you would like to discuss any VAT related points at all, in particular if you need assistance in dealing with the change in rate, please get in touch.
This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.