Temporary reduced VAT for parts of the Hospitality and Leisure sector
In the Summer Economic Update the government announced some changes to the VAT treatment of certain supplies of hospitality, hotel and holiday accommodation as well as admission to certain attractions.
The reduced rate of 5% is the same as that currently used for some light and heat so you may already have this VAT rate as an option within your accounting software.
The change in VAT rate will come into effect from 15 July 2020 and is currently intended to stay in place until 12 January 2021.
SPRING BUDGET 2021 UPDATE: the reduced rate has now been further extended to 30 September 2021. An intermediate rate of 12.5% will apply for qualifying supplies from 1 October 2021 to 31 March 2022, after which the standard 20% rate will apply again.
Who the reduced rate applies to
The following businesses will benefit from the temporary 5% reduced rate of VAT:
If you supply food and non-alcoholic beverages for consumption on your premises, for example, a restaurant, café or pub, you’re currently required to charge VAT at the standard rate of 20%. However, when you make these supplies 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 takeaway non-alcoholic drinks.
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
Admission to certain attractions
If you charge a fee for admission to certain attractions where the supplies are currently standard rated, you will only need to charge the reduced rate of VAT.
Admissions to attractions that are not eligible for the cultural VAT exemption will also benefit from the temporary VAT reduction. These include theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas and exhibitions. However, if the fee you charge for admission is currently exempt, that will take precedence and your supplies will not qualify for the reduced rate.
The Flat Rate Scheme
If you are a small business and use the 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.
The Tour Operators Margin Scheme
If you are a business that buys in and resells 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.
Further information about how the introduction of the temporary reduced rate of VAT will affect your calculations can be found in Tour Operators Margin Scheme (VAT Notice 709/5).
Accounting for supplies that straddle the temporary reduced rate
In most cases, you will simply account for the reduced VAT rate. However, there may be situations where you receive payments or issue invoices before 15 July 2020 for supplies that take place on or after 15 July 2020. More information about this can be found in sections 30.7.4 to 30.9.2 of VAT guide (VAT Notice 700).