22nd July 2020
In a move to urgently support businesses most severely affected by forced closures and social distancing measures, the Government announced on 8 July 2020 that a reduced rate of VAT at 5% would apply from 15 July 2020 to 12 January 2021 for the supply of certain supplies linked to hospitality and tourism.
Outline of the VAT relief
- The reduced rate of VAT at 5% will apply for a set time period and is effective from 15 July 2020 to 12 January 2021
- The reduced rate applies to the following:
Includes the following:
- Hot and cold food for consumption on the premises on which they are supplied
- Hot and cold non-alcoholic drinks 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 drinks for consumption off the premises on which they are supplied
Doesn’t include the following:
- Alcoholic drinks
- Cold takeaway food or drinks
Includes the provision of sleeping accommodation in:
- Boarding houses and similar establishments
- Holiday accommodation including seasonal pitches for caravans, tents, and camping facilities
The reduced rate also applies to the standard rated element of the total valuation for longstay accommodation in the first three bullet points above. Therefore, if you currently apply a 4% effective rate for longstay accommodation following 28 days, the effective rate changes from 4% to 1%.
Includes the admission charges to:
- Amusement parks
In addition, it includes ‘similar’ cultural events and facilities provided that these are not included within the existing cultural exemption.
Our answers to frequently asked questions
Here are our suggestions for some common queries and some areas we can help:
- Deposits paid before 15 July 2020 would be subject to VAT at 20% on standard rated goods and services, however, special provisions may potentially apply whereby the reduced rate can still be applied for the deposit taken even if this was before 15 July 2020. We can assist businesses in assessing this and making a reclaim where possible.
- Important to remember rules on single vs multiple supplies. If a package of services/goods is offered as a single supply the VAT treatment of the whole package will depend on the predominant supply involved. However, if you have a multiple supply of services/goods the VAT treatment can be apportioned between the different elements. Guidance should be sought on whether it is possible to legitimately restructure supplies in order to take advantage of the reduced rate. For example a wedding package may include venue hire (wouldn’t qualify), catering (may qualify), and accommodation (may qualify) and this could potentially also be applied to deposits already taken.
- The reduced rate does not cover membership fees or subscription payments whereby the fee being paid is for the right to enter a members club (even if some of the benefits of membership would potentially qualify if sold separately).
- To the extent that mixers are sold separately to alcoholic drinks, it may be possible to apply the reduced rate to the sale of the mixers as long as certain measures are taken.
- It may be possible to offer special offer/limited time vouchers which will enable you to promote the business for quieter times and lock in the reduced rate of 5% at the point of the sale of the voucher (rather than on redemption). The services/goods would still need to be consumed before 12 January 2021 but you could offer a discount to the price to encourage customers.