*Updated 29 September 2020*
6 Month VAT Rate Cut for Tourism and Hospitality Sectors - Further Guidance
Following the Chancellor’s announcement on the 8th of July that a temporary 5% reduced rate of VAT would apply for certain supplies within the tourism and hospitality sectors between 15th July 2020 until 31 March 2021, further guidance has now been issued.
Whether you are in the Pub and Restaurant sector, Hotel and Holiday sector or provide Admission to Attractions, we have detailed below how the VAT rate cut will affect you. In addition, we have outlined some practical considerations that can apply to the entire sector.
Coming into effect on Wednesday 15 July 2020, the 5% reduced rate will apply to the following supplies:
- Hot & Cold food for consumption on the premises
- Hot & Cold non-alcoholic beverages for consumption on the premises
- Hot takeaway food for consumption off premises
- Hot takeaway non-alcoholic beverages for consumption off premises
This a temporary measure which ends on 12 January 2021, following which, the current VAT treatment of 20% VAT will once again apply.
The supply of alcoholic beverages, either supplied for consumption on or off premises, will continue to be standard rated.
Further information can be found in VAT notice 709/1 – Catering, Takeaway Food
Whilst it will be clear on the majority of occasions what VAT liability applies, there are some situations where the treatment will be unclear and we look at these in more depth below.
Customers may pay for meals with a voucher, how does this impact on the reduced rate?
The VAT treatment of vouchers depends upon whether they can only obtain goods at a single VAT rate – a Single Purpose Voucher (SPV) or can obtain goods and services at multiple rates – a Multi-Purpose Voucher (MPV). In most cases, vouchers issued for the hospitality sector would have been SPVs if issued prior to 15 July 2020. However, those issued after 15 July, unless they expire before 31 March 2021 and can only be used for reduced rate items are likely to be MPVs.
VAT is accounted for when an SPV is issued but only when redeemed if an MPV. Consequently, for SPV’s you only have to apply the reduced rate to any payment made by cash after the face value of the voucher is taken into account; however, for an MPV it is treated as cash and so the appropriate rate of VAT is applied to the entire bill when the voucher is redeemed, whether this is pre or post 31 March 2021.
Mixed rate supplies
Where reduced rate food and standard rated beverages are supplied as part of a single price (e.g. a Prosecco High Tea or a “Pie and a Pint” deal), it is necessary to apportion the price between the two elements. In Scotland, that will also need to take account of the minimum pricing legislation.
The above would not apply to a cocktail which is made up of standard rated alcohol and reduced rate mixers. HMRC would see this as the single supply of an alcoholic drink subject to VAT at the standard rate.
Zero rate items
Where supplies currently qualify for the zero rate of VAT, e.g. cold takeaway food for off premises consumption, the existing treatment will continue to apply.
Hotel and Holiday Accommodation
The suppliy of sleeping accommodation in a hotel, inn, boarding house or similar establishment will be subject to the 5% reduced VAT rate from Wednesday 15th July.
In addition, the temporary reduced rate applies to self-catering holiday accommodation, including caravan and camping rentals and pitch fees.
If you provide a room within a hotel solely for the purpose of catering, your supply will attract the reduced rate of 5% VAT. This applies regardless of whether you or another person is supplying the catering.
However, if this is part of a wider supply, such as the provision of conference facilities, the normal VAT rules will apply.
The position for weddings is not straight forward. HMRC state that where there is a separate supply of catering at a wedding then this can be treated as being subject to VAT at the reduced rate. However, HMRC states that a wedding package, where there is a single supply covering all of the elements, continues to be standard rated.
If a deposit has been received for a stay that commences on or after 15 July, hotels will need to revisit their VAT accounting as the 5% reduced rate should be applied. If a VAT invoice has been issued in relation to the deposit, a credit notes will be required to account for any change in the VAT rate.
Stays straddling the rate change
It should be possible to apportion the stay between the days prior to 15th July (accounting for VAT at 20%) and those days after 15th July (accounting for VAT at 5%).
More information can be found in VAT notice 709/3 – Hotels and Holiday accommodation https://www.gov.uk/guidance/hotels-holiday-accommodation-and-vat-notice-7093
Admission charges to attractions
From 15th July until 31 March 2021, the following supplies will be supplied at a reduced VAT rate of 5%, if they are not eligible for the cultural exemption:
· Factory tours
· Amusement parks
· Botanic Gardens
· Similar cultural events and facilities
The reduced rate may also apply to attractions if the main supply is the admission fee to the attraction and any other standard rated supplies included are incidental. For example, admission to a brewery or distillery tour which includes an incidental supply of alcohol (e.g. at a tasting session) as part of the tour would be eligible for the temporary reduced rate. However, if the provision of the alcoholic drinks is the main purpose of the attraction, the admission fee would not qualify for the reduced rate.
The temporary reduced rate does not apply to admission to sporting events.
Further information can be found in the HMRC guidance on admission to events - https://www.gov.uk/guidance/vat-on-admission-charges-to-attractions
Whichever part of the tourism and hospitality sector you operate in, the following points will be of relevance to your business.
If you show a VAT inclusive price, it would be necessary to change your selling price to pass on the VAT rate reduction to the consumer. However, whether you change your prices to reflect the reduced VAT rate or keep prices the same and retain the benefit of the reduction is a commercial decision for each business.
If you quote VAT exclusive prices, the final price will automatically reflect the change.
Accounting Systems issues
You need to understand how your VAT accounting will cope with the reduction in the VAT rate.
- Does your system have the functionality to programme in the reduced rate of 5%;
- Does your system have the function (if required) to recognise multiply VAT rates on a single supply i.e. a sit in meal at 5% with alcoholic beverages at 20% rates of VAT;
- As both the initial reduction and the subsequent increase in the VAT rate fall in the middle of a VAT accounting period, care is needed to ensure that the correct rate is applied to the pre and post change transactions.
The temporary reduced rate applies at the retail element of the supply chain. Consequently, wholesale supplies of food and drink will remain subject to the existing rate of VAT including the zero rate for eligible foodstuffs.
The Flat Rate Scheme
If you use the Flat Rate Scheme to simplify your VAT calculations, you should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT. It is important that the correct rate is used during the period of the reduction.
The Tour Operators Margin Scheme
If you buy in and resell travel, accommodation and certain other services, and you act in your own name, you may operate the Tour Operators Margin Scheme to simplify your calculations.
How can AAB help?
Our Indirect Tax team has experience of previous VAT rate changes and the issues experienced by businesses. Our team will be able to support you the practical aspects of a rate change.
If you require further information or support regarding the temporary VAT rate change, please contact Suzanne Yule, Indirect Tax Assistant Manager, or your usual AAB contact.
Following on from our recent blog which looked generally on the economic and practical implications of a VAT rate cut, we look at the specific measures announced by Rishi Sunak in the Summer Economic Update.
Focusing on the Tourism and Hospitality sectors, the Chancellor has announced a reduced rate of VAT for the period from 15 July 2020 to 31 March 2021. The measures cover:
- Food and non-alcoholic drinks – The reduced (5%) rate of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK.
- Accommodation and attractions – The reduced (5%) rate of VAT will apply to supplies of accommodation and admission to attractions across the UK.
As always, the devil will be in the detail when looking at these changes. As further guidance on the scope of these relief is published by HMRC, we will provide further details.
If you require further information or support in relation to the temporary VAT rate change, please contact Alistair Duncan, Indirect Tax Director, or your usual AAB contact.