On 8 July, the Chancellor announced a temporary drop in the VAT rate charged on many supplies made by the tourist and hospitality industry. Between 15 July 2020 and 12 January 2021, VAT will be reduced from 20% to 5% on the following supplies:
- all 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
- admission to certain attractions (unless already eligible for the cultural VAT exemption) such as:
- theatres & cinemas
- circuses, fairs & amusement parks
- museums & exhibitions
- zoos, and
- similar cultural events and facilities (which is understood to include such things as historic houses, parks and sites of natural beauty)
It has been confirmed that admissions to sporting events does not benefit from the VAT cut.
Deposits
Where deposits for bookings between 15 July 202 and 12 January 2021 were paid prior to the VAT cut taking effect, the supplier is able to adjust the VAT charged to the 5% rate. However, this is at the supplier’s discretion and the customer is unable to insist upon it. If an adjustment is made to a supply for which a VAT invoice has been issued, the supplier must provide the customer with a VAT only credit note.
Unusually, there are no anti-forestalling rules in place for when the VAT rate returns to 20%. This means that there is nothing to prevent people securing the lower VAT rate by paying for holidays on or before 12 January even though the holiday will not be enjoyed until after the temporary reduction in the VAT rate has ended.
Price cuts
There is no requirement for a business to reduce its VAT inclusive prices for the duration of the VAT cut; It is up to the individual business as to whether to pass the benefit of the VAT reduction on to its customers or to hold its VAT inclusive price and increase its own profit on each transaction.
Flat rate scheme
Three categories of the flat rate scheme have had the flat rate percentage reduced following the VAT cut. Businesses should consider whether this is likely to make the scheme less attractive for them. However, it should be noted that any business that leaves the scheme is unable to rejoin for 12 months.
For more information on the temporary VAT reduction, please contact the VAT department on vat@pem.co.uk
