From 15 July 2020 to 12 January 2021 the hospitality and tourism industry will be able to temporarily reduce the VAT they charge on certain products from 20% to 5%.

This will cover 3 main sectors – food and drink, overnight accommodation and entertainment & tourist attractions.

Important Note – It is the VAT registered business responsibility to demonstrate that its supplies are eligible for the temporary reduction. If you would like advice on what documentation you may require to demonstrate this please get in touch with us.

Food and Drink

If you sell food and drink you may already be aware of the complicated rules surrounding food and drink. To summarise the VAT charged differs between take out and eat in, and to complicate further if it is hot or cold food. Hot takeout food will have a new reduced VAT rate of 5%. Cold takeout food such as sandwiches will remain at 0%. Items, however, such as crisps and chocolate bars will remain subject to the standard VAT rate, 20%. The reason the government are making this change is to try and encourage people to eat in at establishments. All food and non-alcoholic drink that is consumed at a dine-in establishment will be subject to 5% VAT rather than 20%. This includes items that would have previously attracted VAT at a rate of 20% e.g. a packet of crisps or a chocolate bar. Alcohol will still be subject to 20% VAT even when consumed on the premises. The important message to take from this is establishments will find it much easier to navigate these changes if they have a detailed POS system. If you currently do not use a digital POS system, or even if you use one that doesn’t integrate with your bookkeeping software please get in touch and let us demonstrate the time saving benefits one could offer you.

Entertainment & Tourist Attractions

Admission to various attractions, such as: theatres, circuses, fairs, amusement parks, concerts, museums, zoos, exhibitions, and other similar cultural events and facilities will attract a new VAT rate of 5% instead of 20% for the temporary time period. This DOES NOT include any facility already exempt from VAT (under the cultural exemption) as they will remain exempt.

Hotel Accommodation

Any charges for hotel room accommodation will now be subject to a VAT rate of 5% rather than 20%. It is important to note, if a customer has booked in advance for a stay after the 15th of July the business owner has the option to retrospectively change the VAT charged to 5%, this is however at their discretion.

Flat Rate Scheme

If you are within an eligible industry and are on the Flat Rate Scheme it may well be worthwhile coming off the scheme to benefit from the new 5% reduced rate. However once you leave the flat rate scheme you will have to wait 12 months before rejoining so you will need to do some calculations to ensure it is worthwhile in the long run. If you are currently on the VAT flat rate scheme and are unsure how this new rate could be of benefit to you and your business please get in touch for further information.

Mixed Rate Supplies

If your business deals with mixed VAT rate supplies we strongly urge you to contact us or your chosen trusted advisor to work out the best way to deal with this change.