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 change in VAT rate will come into effect from 15 July 2020 and is currently intended to stay in place until 12 January 2021. 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.

Who the reduced rate applies to

The following businesses will benefit from the temporary 5% reduced rate of VAT:

Hospitality

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 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 takeaway non-alcoholic drinks.

Read top tips for dealing with the reduction in VAT

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 between 15 July 2020 and 12 January 2021.

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 VAT at 5% for supplies made between 15 July 2020 and 12 January 2021. 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).

For further information or advice on VAT for your business, please get in touch with a member of our tax team on 01903 234094.