VAT Rate Change for the Hospitality Industry

From today (15 July) the VAT rate applicable to certain supplies within the hospitality industry reduces from 20% to 5%.

The aim of the measure is to support businesses in the leisure and hospitality industry severely affected by the Coronavirus pandemic and will apply until 12 January 2021.

The supplies confirmed by HMRC to benefit from the reduction are as follows:

• food and non-alcoholic beverages sold for on-premises consumption (for example in restaurants, cafes and pubs)
• hot takeaway food and hot takeaway non-alcoholic beverages
• sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities
• admissions to the following attractions that are not already eligible for the cultural VAT exemption such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities

Output VAT

Where payment has been received for movement of goods of delivery of services on or after 15 July the business can opt to apply the 5% VAT rate regardless of whether or not an invoice has been provided that shows VAT is charged at the previous higher rate of 20%.

Refunds or credit notes should include VAT consistent with the sales invoice and reflect the rate charged accordingly.

For ease of reference, the calculation of VAT on VAT-inclusive prices of supplies applicable to the reduction changes from 1/6 to 1/21.

VAT should still be accounted for on the full value of relevant supplies on which the ‘Eat Out to Help Out’ discount is applied.

Input VAT

There is no restriction to the amount able to be recovered by applicable businesses on inputs as a result of this change – where VAT has been charged on the supplier invoice at 20% it is fine to claim that on the VAT return.

VAT Schemes

From a cash accounting perspective we don’t expect too many issues as there are unlikely to be many payments for goods or services provided before payment within the industry, however the general tax point rules apply here – if the good or services was provided before 15 July but payment was received on or after that date the old rate applies.

In terms of the flat rate scheme we’re expecting the announcement of a reduction to applicable rates as a reflection of this measure, but this hasn’t yet been announced.

If there isn’t a reduction announced in the coming weeks it may be worth those currently on the flat rate scheme considering whether a switch to standard accounting would be more financially beneficial based on their output VAT vs input VAT balance.

Passing on the Savings…

It is important to note that, unless there are contracts or agreements in place with customers that state otherwise, there is no obligation to pass the VAT saving onto the consumer.

This is of course at the discretion of the business, but the aim of the measure is ultimately to financially boost the leisure and hospitality industry and protect jobs which the resulting additional cashflow is designed to support.

Software

We’d strongly recommend those to which the above changes update their sales and/or accounting software to reflect these changes as soon as possible to ensure compliance going forward – please get in touch to speak to one of our software specialists if you need any support in this respect.

If you have any questions regarding this or anything else please get in touch, and for regular updates, announcements and news please check our website (www.dsaprospect.co.uk) and make sure you’re following our LinkedIn page: https://www.linkedin.com/company/dsa-prospect-ltd