Last week the Chancellor announced a temporary reduction in VAT on supplies between 15 July 2020 and 12 January 2021 on hospitality, hotel and holiday accommodation and admission to certain attractions. Colin French, our resident VAT expert, has summarised these changes below.
Anything VAT related is never straightforward, so if you have any queries on this issue then feel free to get in touch and we will do our best to assist.
The VAT Reduction – 15 July 2020 to 12 January 2021.
The government made an announcement on 8 July 2020 allowing VAT registered businesses to apply a temporary 5% reduced rate of VAT to certain supplies relating to:
Hospitality
Hotel and holiday accommodation
Admission to certain attractions.
The temporary reduced rate will apply to supplies that are made between 15 July 2020 and 12 January 2021.
Hospitality
If you supply food and non-alcoholic drinks for consumption on your premises, for example, café, restaurant, pub etc. you are required to charge VAT at the standard rate of 20%.
When you make these supplies between 15 July 2020 and 12 January 2021 you will only need to charge 5%.
You will also be able to charge the reduced rate of VAT on your supplies of hot takeaway food and hot take away non-alcoholic drinks.
Cold take away food will remain at the zero rate of VAT.
For businesses providing take away services, an important scenario to deal with will be when a customer orders a mixed supply, for example a cold sandwich (Zero rated), coffee (5%) and a bottle of beer (20% as excluded as an alcohol product).
Unless the business has an efficient till system they will need to have a good system in place to record these transactions and provide a receipt to their customer if they require a VAT invoice.
Any supplies of food and drink that are supplied as part of a supply of catering services for consumption off-premises remain standard rated.
If you aren’t sure if you supply catering services for consumption off-premises, please contact us for further guidance.
Hotel and holiday accommodation
You will benefit from the temporary reduced rate if you:
Supply sleeping accommodation in a hotel or similar establishment
Make certain supplies of holiday accommodation
Charge fees for caravan pitches and associated facilities
Charge fees for tent pitches or camping facilities
Supply sleeping accommodation in a hotel or similar establishment
Commercial establishments providing lodging (furnished sleeping accommodation) and meals and other facilities, such as hotels, inns, boarding houses, hostels, motels, guesthouses, bed and breakfast establishments etc. that are VAT registered can reduce the rate of VAT charged on their fees from the standard rate of VAT of 20% to 5% between 15 July 2020 and 12 January 2021.
The VAT rate of associated supplies provided with the provided accommodation tend to follow the same VAT liability as the accommodation.
Long stay guests (when a guest stays over 28 consecutive days) have their own special VAT rules. Please contact us if you require advice on how to deal with these transactions.
Other services offered by hotels and similar establishments such as, accommodation used for catering, accommodation and catering supplied to employees, hire of room for meetings/conferences, wedding packages have their own special rules. Please contact us if you require advice on how to deal with these transactions.
Holiday accommodation
Holiday accommodation includes, but is not restricted to, any house, flat, chalet, villa, beach hut, caravan and house boat.
The letting of holiday accommodation supplied between 15 July 2020 and 12 January 2021 will qualify for the reduced rate of VAT at 5%.
Some holiday accommodation properties are restricted to seasonal time periods.
If it is possible to let these properties off season for more than 28 days as residential letting, there are special rules regarding the VAT treatment. Please contact us if this is something you plan to do.
Caravan Pitches and associated facilities, tent pitches and camping facilities
If you supply a pitch for a tent or holiday accommodation in a tent, your supply is temporarily reduced to VAT rate of 5% from 15 July 2020 to 12 January 2021.
If you provide holiday accommodation in any type of caravan already sited on a pitch your supply is also temporarily reduced to VAT of 5% from 15 July 2020 to 12 January 2021.
Deposits, invoices and payments received before the change in VAT rate for Hotel and holiday accommodation to be used after the change in VAT rate
Most deposits serve as advance payments and you must account for VAT in the return period in which you receive the payment.
If you retain a deposit for a booking which your customer fails to take up VAT remains due.
If you have received a deposit, raised and invoice or received part or full payment for holiday accommodation before 15 July 2020 you will have charged VAT at the standard rate of VAT at 20%.
If any of these relate to a holiday to be taken after 15 July 2020 then there is an optional scheme that allows the basic tax point (date of supply) to take priority over the actual tax point (receipt of advance payment).
But if the customer has borne the cost of the VAT, for example £100 + VAT £20 = £120 and the invoice is reduced to £100 + VAT £5 = £115 the VAT saving must be passed on to the customer under the rules for unjust enrichment.
This is different to new bookings made from today onwards for bookings held as VAT inclusive as the customers would be paying the advertised “Gross price”.
For example, a daily rate on the 14 July 2020 is held at £50 VAT inclusive per night. The VAT rate on this day is 20% and the hotel therefore receives £41.66 of the £50.
On the 15 July 2020 the price is still held at £50 VAT inclusive per night. The VAT rate on this day is 5% and the hotel therefore keeps £47.61 of the £50.
It is up the business to decide if they want to pass on the VAT savings to do the customer.
Cash accounting scheme
If you use cash accounting please contact us if you are not sure how to account for the change in the rate change of VAT.
Retail Scheme
If you use any retail schemes you should contact us for guidance.
If you are newly registered
Newly registered businesses have their own special rules if their supplies spans the change of VAT rate.
The Flat Rate Scheme
If you use the flat rate scheme to simplify your VAT calculations, some of the percentages have been reduced in line with the introduction of the temporary reduced rate of VAT.
It should be worth considering if leaving the scheme will benefit your business as any previous VAT savings my now be lost.
Please consider that if you do leave the flat rate scheme you will not be able to re-join again for at 12 months.
The Tour Operates Margin Scheme
If you use the Tour Operators Margin Scheme and need guidance regarding the change of VAT rate, please contact us.
Admission to certain attractions
If you charge a fee for admission to certain attractions where the supplies are currently standard rated at 20%, you will only need to charge the reduced rate of VAT between 15 July 2020 and 12 January 2021.
If the fee you currently charge is exempt from VAT, this will take precedence and will not qualify for the reduced rate.
Admissions that are not eligible for exemption and therefore may qualify for the reduced VAT rate of 5% are:
Theatres, Circuses, Fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities but if admission is covered by an existing cultural exemption, the exemption will take precedence.