When the Chancellor announced a temporary cut in the rate of VAT for the hospitality sector and attractions in his Summer Statement on 8 July there were a number of areas that needed clarification. The reduction applies to supplies made between 15 July 2020 and 12 January 2021.

HMRC have now set out more details of which supplies will attract the 5% temporary rate as well as the impact on invoicing, deposits and the flat rate scheme.

WHAT DOES THE 5% TEMPORARY VAT RATE APPLY TO?

The temporary 5% rate applies to the following supplies, but is not an exhaustive list:

  • Catering, including hot takeaway food
  • Accommodation in hotels, guest houses and similar places
  • Tourist attractions such as theme parks, zoos, theatres and cinemas

Note that as far as catering is concerned, the 5% rate only applies to food and non-alcoholic drinks. The 20% rate continues to apply to alcoholic drinks.

Please contact us if you are unsure as to whether the 5% rate applies to any of your supplies.

VAT TREATMENT OF DEPOSITS

It is fairly common, particularly in the summer holidays, to pay a deposit when booking a hotel or self-catering accommodation but how should the deposit be accounted for?

HMRC have confirmed that the hotel has the option of charging VAT according to the ‘basic tax point’ (dates of the stay) rather than the ‘actual tax point’ (invoice/payment dates).

For example where the customer paid a non-refundable £300 deposit in February 2020 for a £1000 holiday in Cornwall in August, using the actual tax point, the hotel would account for 20% VAT on the deposit received in February 2020 and 5% on the balance payable after 15 July 2020.  The hotel could choose to use the basic tax point rule which would mean that the 5% rate would apply to the entire cost of the stay and make an adjustment for the VAT already accounted for.

Please contact us if you need advice on dealing with the invoicing or accounting for such transactions.

INTERACTION WITH VAT FLAT RATE SCHEME

Small businesses with turnover below £150,000 may join the VAT flat rate scheme which makes their VAT accounting much simpler as they merely pay HMRC a percentage of their VAT inclusive turnover.

The temporary reduction in the rate of VAT from 20% to 5% reduces the flat rate percentages for affected businesses as set out below:

Type of Business

15 July 20  to 12 Jan 2021

From 13 January 2021

Catering services including restaurants and takeaways

4.5

12.5

Hotel or accommodation

0

10.5

Pubs

1

6.5

Note that to use the flat rate percentage for pubs the turnover must be predominantly “wet sales”.

Stay calm, stay safe…stay well and remember, ‘JOY’ is contagious too! 

Disclaimer Notice

The information contained in this  article is for general information purposes only and does not constitute advice, Whilst we endeavour to keep the information up-to-date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability for a particular purpose. We recommend that professional advise should be taken from a suitably qualified expert before undertaking any action.

CategoryCovid-19
Subscribe to our newsletter

© 2019 Shaikh & Co is the trading name of Shaikh & Co Limited a company registered in England and Wales Company Number 10372642 VAT Number 262993664.

Shaikh & Co