Applying the temporary VAT cut

In the Summer Statement 2020, the Chancellor announced a temporary VAT cut for food and non-alcoholic drinks and a temporary VAT cut for accommodation and attractions >read more Summer Statement 2020.

A reduced 5% rate of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. The temporary rate will apply from 15 July 2020 to 12 January 2021. The 5% rate of VAT will also apply from 15 July 2020 to 12 January 2021 to supplies of accommodation and admission to attractions across the UK.

Applying the temporary VAT cut

The UK Government has introduced a temporary reduction in VAT (from the standard-rated 20% to a temporary ‘reduced-rate’ of 5%) for certain supplies in the hospitality, holiday accommodation and attractions sectors.

This reduction becomes effective from today, 15 July 2020, and will last until 12 January 2021, and applies to supplies made between during that six-month period.

If you are a VAT registered business or charity currently providing the following, there is scope to apply the reduced rate as follows:

Hospitality

The temporary reduced rate applies to the supply of food and non-alcoholic beverages to paying customers for consumption on your premises (for example, a restaurant, café or pub) and also supplies of hot takeaway food (cold takeaway food is already zero-rated for VAT purposes) and hot takeaway non-alcoholic drinks.

Further information can be found in HMRC’s VAT Notice 709/1 >read more 

Hotel and holiday accommodation

The temporary reduced rate applies if you supply sleeping accommodation in a hotel, inn, boarding house or similar establishment; make certain supplies of holiday accommodation; charge fees for caravan pitches and associated facilities; or charge fees for tent pitches or camping facilities.

Further information can be found in HMRC’s VAT Notice 709/3 >read more   

Attractions

The temporary reduced rate applies if you supply admissions that are currently VAT standard-rated (and not, for example, already eligible for the cultural VAT exemption) such as: shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and “similar cultural events and facilities”.

Please note the reduced rate only applies to “admission fees” (although where physical goods are part of the admission fee and are merely ‘incidental’ to the main supply, the whole supply is eligible), and explicitly does not apply to admission to “sporting events” (defined by HMRC here >sports supplies that are VAT exempt) or supplies that are exempt from VAT as betting/gaming; qualifying exempt cultural services; education; fund raising events by charities and other qualifying bodies; and health & welfare.

Till systems, accounting systems, and VAT invoices/receipts (and, potentially, gross prices charged to customers, if your business/charity wishes to pass on some or all of the reduction to customers) will need to be updated to reflect the temporary reduced rate that now applies to the above supplies.

We are aware that many traditional, computer-based accounting software packages, such as Sage are in the process of issuing their own specific guidance to their subscribers regarding updating their own settings. Sage has also produced a useful video on applying the VAT reduction which you can watch here >Sage - VAT reduction guidance

If you have any specific query regarding whether your supply is affected by the temporary reduced rate, please contact our VAT Specialist Iain Johnston

Updating your accounting system - Useful links

Sage VAT change hub >read more

How to apply the VAT cut in Xero >read more

How do I process the reduced VAT rate in Kashflow >read more

How to apply the reduced VAT rate to purchases and sales in Freeagent >read more

If you have any query regarding updating your cloud accounting system, please contact our Cloud Accounting Manager Kim Matheson

Find out more about our cloud accounting and digital application packages for businesses, charities and sole traders >maco cloud 

VAT Flat Rate Scheme

For businesses who use the VAT Flat Rate Scheme, please note that HMRC have updated their VAT Flat Rate Scheme rates to reflect the temporary VAT reduction for those in the hospitality sector who use the Scheme, with many – where eligible – able to apply a 0% rate to their gross turnover for the six month period.

The full list of relevant rates can be found on gov.uk >VAT Flat Rate Scheme