The government has recently announced that UK holiday sites will benefit from a temporary 5% reduced rate of VAT.
This covers supplies relating to hospitality, hotel and holiday accommodation and admissions to certain attractions as the UK eases out of lockdown.
The temporary reduced rate will apply to pitch fees and holiday accommodation, such as chalets, villas, beach huts, tents, glamping pods, caravans and houseboats that are supplied between 15 July and 12 January 2021.
Mobile homes, park homes, touring caravans and static caravans all fall within the ‘caravan’ classification for these purposes.
The reduced VAT rate will help a wide range of holiday parks make savings and encourage tourists to stay at their site.
If you rent a tent or caravan pitch to holidaymakers, this will also benefit from the 5% rate of VAT. Additionally, supplying associated facilities will also be subject to the lower VAT rate if it is all part of a single supply of a pitch.
If you sell or lease new holiday accommodation, your supply will remain standard rated for VAT and is not affected by the new 5% rate of VAT. Off-season letting which falls within the definition of residential letting for more than 28 days where the holiday trade is seasonal will also continue to be exempt from VAT.
As well as holiday accommodation, other supplies of hospitality such as catering, attractions and cultural events will benefit from the temporary 5% rate. So, if a holiday park supplies additional facilities then it’s worth taking the full benefit of the reduced rate.
Many holiday parks will require a deposit to be paid by holidaymakers in advance of their stay, and may be impacted by the latest announcement.
If you receive deposit payments or issue invoices before 15 July 2020 for supplies that take place on or after this date, you will have likely accounted for VAT at a 20% rate when you took payment or issued an invoice. In these scenarios, you can choose to account for VAT at the 5% rate on payments you receive or invoices you issued before the 15 July - or you can choose to not adjust the rate of VAT from 20%.
If you do choose to account for VAT at 5%, you’ll need to refund your customer the difference of 15% VAT via a credit note. If you choose to not adjust the rate of VAT from 20%, you should still treat the relevant supplies at the 5% rate.
Service charges will continue to be standard rated and won’t benefit from the temporarily reduced rate.
As well as this, any other charges which are not part of a single supply of holiday accommodation won’t benefit from the reduced rate of 5%. What is treated as a single or a multiple supply is a complex area of VAT law, so be sure to seek expert advice if you are unsure.
Where customers do not take up the booking of holiday accommodation then VAT is still accounted for at the rate at which it was charged and can only be reduced to the extent that the payment received is refunded to the customer. Non-refundable deposits cannot be re-categorised as cancellation charges.
The reduced rate is fantastic news for a number of businesses across the UK that will really benefit from this temporary VAT rate change. However, it will raise a lot of questions for those who want to make the most of this but are unsure how to proceed. It’s important to adhere to the guidelines issued by the government, which require taxpayers to demonstrate that their supplies are eligible for the reduced rate.
If you’re unsure whether this change will impact your business or how to make the changes necessary to benefit from the new rates, contact our experts today.