HMRC publishes guidance on temporary VAT rate cut for the hospitality and tourism sectors

10 July 2020| CATEGORIES: VAT rates| TAGS: Covid measures, hospitality, tourism, VAT rate cut

On 8 July 2020 Rishi Sunak announced a targeted temporary VAT rate cut for the UK hospitality and tourism sectors, see our earlier blog article.  The VAT rate will be reduced from 20% to 5% for the period 15 July 2020 to 12 January 2021. HMRC has now published further guidance on the measure.

HMRC Guidance

The new guidance available on the HMRC website includes:

• Guidance – VAT: reduced rate for hospitality, holiday accommodation and attractions
• Guidance – VAT on admission charges to attractions
• Revenue and Customs Brief 10 (2020): temporary reduced rate of VAT for hospitality, holiday accommodation and attractions
• Policy Paper – Information on the reduced rate of VAT for hospitality, holiday accommodation, and attractions

What businesses need to do

Businesses affected by the VAT rate reduction should ensure that all relevant supplies within the scope of this temporary reduced rate are correctly identified. Systems and process changes should be implemented so that the 5% VAT rate is accounted for and declared to HMRC on these supplies.

In addition to restaurants, bars and cafes, the change will affect other businesses such as shops, hospitals and other venues that have cafes, as well as companies that have staff canteens.

Complicating factors to consider

Businesses need to bear in mind that the measure does not include alcoholic drinks which continue to be subject to 20% VAT. The VAT applicable to any meal deal offers that include alcoholic drinks will therefore need to be apportioned.

In the case of admission charges to attractions, the 5% rate will also apply to any other incidental supplies included in the admission charge.

HMRC’s guidance also includes information on how the change will affect businesses that operate VAT schemes, including the flat rate scheme and the Tour Operators Margin Scheme.

Businesses need to remember that the VAT rate reduction to these supplies is temporary so should also plan for the changes needed when the rate goes back to 20% in January 2021.

Please get in touch if you need any assistance with these changes.