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Temporary reduced rate of VAT for hospitality and tourism

Posted: 21st Aug 2020 by Clair Watmore Business Advice General, Coronavirus, Taxation

The Chancellor’s Summer Statement on 8 July was a bit of good news for some of the sectors that have been hardest hit by COVID-19.  Rishi Sunak announced that from 15 July 2020 until 12 January 2021 certain supplies of hospitality, accommodation and admission to attractions will be subject to VAT at 5% rather than the standard 20% rate. 

This temporary reduced rate will create a significant benefit for much of the hospitality and tourism sector, although the reduced VAT rate does not apply to alcoholic drinks so will not benefit pubs that do little or no food. The extent to which the VAT reduction will be passed on to consumers is yet to be seen. 

Which supplies can be reduced-rated?

Hospitality

  • Supplies of food and non-alcoholic drinks for consumption on the premises, for example in restaurants, cafes and pubs
  • Hot takeaway food (cold takeaway food is already zero-rated)
  • Hot takeaway drinks (cold takeaway soft drinks remain standard-rated).

Accommodation

  • Sleeping accommodation in hotels, inns, boarding houses and similar establishments.
  • Pitch fees for caravans and tents, and associated facilities

Attractions

HMRC’s guidance, “VAT on Admission Charges to Attractions” includes the following examples:

  • shows
  • theatres
  • circuses
  • fairs
  • amusement parks
  • concerts
  • museums
  • zoos
  • cinemas
  • exhibitions
  • similar cultural events and facilities
  • planetariums
  • botanical gardens
  • studio tours
  • factory tours

Admission fees to sporting events are specifically excluded from the reduced rating.

Other issues to consider

Flat Rate Scheme – Certain flat rate scheme percentages have been reduced in line with the reduced rating.  Updated government guidance confirms the new rates as:

Flat rate (%) from 15 July 2020 to 12 January 2021Flat rate (%) up to 14 July 2020 and from 13 January 2021
Catering services including restaurants and takeaways 4.512.5
Hotel or accommodation010.5
Pubs16.5

Accounting for VAT on deposits

Following the Chancellors announcement, 5% VAT will now be due on all cash receipts qualifying for the reduced rate until 12 January 2021. This applies to both deposits and balancing payments received by your business.  If you receive a deposit now for a booking after 12 January 2021 you pay VAT at 5%.

If you received a deposit before 15 July 2020 you will have paid 20% VAT.  If the deposit was for a booking between 15 July and 12 January 2021 you can reduce the VAT paid on the deposit.  This can be done by recovering the overpaid VAT on your next VAT return.  It is your decision whether to keep this repayment of VAT or pass it on to customers as a goodwill gesture.

If you have any questions, please contact our Tax Team on 01904 655202 or email enquiries@hghyork.co.uk