Giving his Summer Statement on 8 July, the chancellor announced a headline measure of VAT on food, accommodation and attractions being cut to just 5%.
He also revealed a new scheme: Eat Out to Help Out, which opened for registrations on 13 July. This scheme aims to encourage consumers to visit restaurants with the offer of a 50% discount for diners, capped at £10 per person, on Monday to Wednesday throughout August 2020.
Whilst this is welcome news for the hospitality, leisure and tourism sector, businesses now face the challenge of ensuring they comply with the regulations and conditions of these measures. We have answered some frequently asked questions below which we hope will help you to successfully make use of the support on offer.
Income received via the scheme will be recorded as outside the scope of VAT because all the VAT has been declared at point of sale to the customer, on the full sale price.
It is completely up to you whether you choose to pass the VAT benefit on to your customers or not. Whether the price you charge is still £6 or £5.25, this will still include 5% VAT to pay over to HM Revenue & Customs (HMRC).
Catering services including restaurants and takeaways is 4.5%, hotel or accommodation is 0% and pubs is 1%. This is a temporary change from 15 July 2020 to 12 January 2021, you will need to revert back to the previous FRS rate from this date.
As of 27 July 2020, HMRC have not issued guidance on this. It is up to you to ensure that you are accounting for VAT and applying for money back from the scheme correctly.
You will need to use a cost-based calculation to work out the value of the meal compared with the alcohol. This will involve calculating the total cost of the standard-rated supply, which is the alcohol, compared to the total cost. This percentage should then be applied to the total selling price to work out the 20% VAT on the alcohol and the 5% VAT on the meal. The Eat Out to Help Out scheme discount can then be applied to the meal value. Click here to download our sales record template.
The VAT fraction to use for calculations is 1/21.
If you do this then you will be paying too much VAT. With the scheme, you can submit claims on a weekly basis and HMRC will pay the eligible claims within five working days. You account for VAT on the meal total in full at 5% and then, when the money from the scheme comes through, you can treat it as outside the scope of VAT.
Your daily takings amount is the full price charged for the food and drink, not the amount the customer pays on the day.
It is possible to change the default VAT rates in most accounting software platforms. You can monitor reduced rate sales by setting up new codes should you wish to. If you are unsure how to make this change then we can support you with this. If you use an EPOS system you should be able to add a new VAT rate and your provider will be able to help you.
Most bookkeeping systems can provide a workaround. We can support you with this.
The 50% can still apply as non-alcoholic drinks are eligible for discount whether food is consumed or not.
HMRC have confirmed that the 50% can apply.
You will need to keep a separate record of 5% VAT rate items, 20% VAT rate items and the Eat Out to Help Out discounts (the amount you are going to claim through the scheme).
For example, if you predominately sell alcoholic drinks and a limited amount of snacks and bar meals, then you can manually record the daily value of the non-alcoholic drinks, meals and snacks to apply the 5% rate. Click here to download our sales record template.
You will need to keep a manual record to be able to make accurate claims under the scheme. Click here to download our sales record template.
Where the wedding is offered as a package of services, so one single supply, then the whole charge is still at 20% VAT. The catering element for a wedding can only be at the 5% rate of VAT if the catering (food and non-alcoholic drinks) is delivered by a separate supply, including where in-house catering is a separate supply.
The supplier can decide if they want to pass on the VAT savings to the customer or not.
Where non-alcoholic drinks and snacks are consumed on the premises, the 5% VAT rate can be applied.
Alcohol free beer is not classed as an alcoholic drink in this instance. If no excise duty is charged then drinks are treated, for VAT purposes, as soft drinks. Excise duty does not apply to beer, wine, cider or perry with an ABV of less than 1.2%.
If you have any questions or queries that have not been answered above, please contact your usual Duncan & Toplis adviser or submit an enquiry to our team here.