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VAT rate changes for the hospitality sector

Duncan & Toplis | 20 July 2020

To support businesses most affected by the COVID-19 crisis and subsequent UK lockdown, the government has announced a temporary adjustment to VAT rates for the hospitality, hotel and holiday accommodation sector from 15 July 2020 to 31 March 2021.

This will see businesses benefit from a rate reduction from 20% to 5%.

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 businesses that 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. 

Supplies that will be impacted

HM Revenue & Customs (HMRC) has released detailed guidance, outlining which supplies will benefit from the temporary 5% reduced rate of VAT:

  • 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
  • Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities
  • Admissions to the following attractions that are not already eligible for the cultural VAT exemption such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities.

If admission to one of the above attractions is covered by an existing cultural exemption, this will take precedence over the new reduced rate. However, if admission is standard rated for VAT then from 15 July 2020, admission will be subject to the new 5% rate. 

There has been some speculation about the inclusion of sporting events, however HMRC has chosen to exclude sporting events from the list of attractions that will be included. 

Flat rate scheme

For small businesses with an annual turnover of less than £150,000 and use the flat rate scheme to simplify tax calculations, HMRC has announced that certain percentages will be reduced in line with the introduction of the temporary reduced rate of VAT at 5%. The new rates are yet to be announced, so look out for an update on this in the near future.

Will deposits be impacted?

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.

 

If you’re unsure whether this change will impact your business or how to make the changes necessary to benefit from the new rates, speak to your usual Duncan & Toplis adviser or contact our experts today.

 

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