VAT cut in bid to support the hospitality sector

In his Summer Statement on 8 July 2020, the Chancellor announced a six-month reduction in the VAT rate on supplies of food and non-alcoholic drinks from restaurants, pubs, bars and cafés, as well as to supplies of accommodation and admission to tourist attractions.

These cuts are effective from 15 July 2020 until 12 January 2021.

HMRC’s VAT notices are being updated daily with further detailed guidance.

Hotel accommodation and attractions

Hotel accommodation which will be provided in the period 15 July 2020 to 12 January 2021 will be charged at the 5% rate rather than the standard rate of 20%. 

We have been awaiting clarity in certain areas, for example, how the VAT paid on pre-booked holidays and advance ticket sales will be dealt with.

Where deposits have already been taken, for example in January 2020, which relate to a stay in September 2020, the VAT rate to be applied by the hotel both to the initial deposit received and the eventual balance which will become due, can be at the reduced rate of 5%. So, if the hotelier wishes to avail himself of the reduced rate of VAT for the January 2020 deposit, the hotelier must issue a VAT credit note and re-invoice at 5% for the initial deposit transaction. This may result in the hotelier repaying the guest the VAT saved.

VAT on food and non-alcoholic drinks

Some of the noteworthy points are:

  • A temporary 5% reduced VAT rate has been introduced for supplies of:
  • hot and cold food for consumption on the premises on which they are supplied
  • hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied
  • hot takeaway food for consumption off the premises on which they are supplied
  • hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied

This applies to supplies made in pubs, restaurants, cafes and HMRC’s catch-all “similar establishments”. 

  • The supply of cold takeaway food retains its current VAT treatment. 
  • Suppliers to the catering industry of wholesale food and drink will not be able to avail themselves of this temporary VAT rate reduction and normal VAT rules will apply.
  • The supply of alcoholic drinks, regardless of whether they are consumed in a pub or are taken away as a carry-out, will remain at the standard rate of VAT, i.e. 20%.
  • The question as to who will benefit from the “saving made” because of the VAT reduction, i.e. the customer or the restauranteur, will come down to a commercial decision being made by the restauranteur. Consumer pressure may necessitate the saving being passed on to the ultimate buyer. However, considering the difficulties which the restauranteur may have suffered in the prior months, this may result in his prices being increased to relieve some of the pressures he has been under. Where the T&Cs state that the price payable is VAT inclusive, businesses such as the restaurateur may decide to retain the difference in VAT rate.

The change occurs mid-month on 15 July 2020, so the VAT return will have sales which occurred prior to and post the change in VAT rate.  Furthermore, for restauranteurs there will be three VAT rates which now need to be recorded, i.e. 0%, 5% and 20% as opposed to two, so extra care is required.

The VAT Notices which have been recently updated and cover some of the above are as follows:

1. VAT Notice 701/14 – Food Products

2. VAT Notice 709/1 – Catering and Takeaway food

3. VAT Notice 709/3 – Hotels and holiday accommodation

If you operate in these sectors, please refer to the above to ensure any VAT efficiencies are maximised and you remain compliant.

Please contact your usual contact at Bennett Brooks if you have any specific queries.