VAT changes in the Hospitality and Tourism sector

The Chancellor’s Summer Statement

The Chancellor delivered his Summer Statement on 8 July 2020. It contained key measures intended to stimulate consumer spending in the wake of the Covid-19 pandemic. One of these was the sector specific VAT changes on the Hospitality and Tourism sector. The reduction in the the standard rate of VAT was among measures that start on 15 July 2020 and run until 12 January 2021 with VAT reduced for a temporary six month period from 20% to 5%. The hospitality and tourism sectors the UK has one of the highest VAT rates in the EU. This change brings it into line with some of the lowest.

The measures are intended to provide stimulus to the economy.

The reduction applies to supplies of food and non-alcoholic drinks from pubs, bars and restaurants. The measures also contain changes to the supply of accommodation as well as admission to attractions and cinemas.

Things to consider

Businesses need to consider the following when developing their plans:

  • Till systems should be changed for the VAT rate changes. Software providers will be able to assist in this process.
  • Accounting software will have to be changed to accommodate the changes.
  • Businesses operating on a cash accounting basis will need to take care when calculating the VAT payable. By determining the “tax point” they will apply the correct VAT rate.
  • Menus and price lists may need to be amended reflecting a reduced VAT inclusive price.
  • Many businesses will take deposits. They will have correctly accounted for VAT at 20% at the time of the deposit transaction. When redeemed in the window where the temporary cut applies, there will be scope to reduce the VAT to 5%.
  • Those businesses operating the Flat Rate Scheme will have to consider whether it is beneficial to remain in the scheme. If the business leaves part way through a month it will have to wait 12 months before rejoining.
  • Food, wine and entertainment packages will make it important to establish whether a single composite or multiple supply is being made.This will allow the business to apply the correct VAT treatment.

This is by no means an exhaustive list of the issues. More will become evident over the coming weeks. As with many of the recent announcements by the Government clarification of the headline announcements will follow in the coming days and weeks.

To discuss any of the measures mentioned here or in our Summer Statement publication you can get in touch here.