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Temporary reduced rate of VAT for hospitality and tourism sector

Temporary reduced rate of VAT for hospitality

The UK will introduce a temporary reduced rate of five percent for certain supplies, aimed at helping the hospitality and tourism sectors.

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In the Chancellor’s Summer Statement it was announced that a targeted reduced rate of VAT would be introduced aimed at some of the sectors hardest hit by COVID-19 - hospitality and tourism. Such supplies, currently standard rated at 20 percent, will be subject to VAT at five percent. The new rate will apply from Wednesday 15 July 2020 and will run until 12 January 2021. The types of supply covered include food and non-alcoholic drinks consumed in restaurants, pubs, bars, cafés and similar premises across the UK and hot takeaway food and non-alcoholic drinks by those suppliers. The reduced rate of VAT will also apply to supplies of hotel and holiday accommodation and admission to attractions across the UK. In order to further help restaurants, cafés, pubs or other food establishments the Government has also announced a new ‘Eat Out to Help Out’ scheme.

Further to the announcement during the economic update, Revenue and Customs Brief 10 (2020): temporary reduced rate of VAT for hospitality, holiday accommodation and attractions, has been published. This high level Brief also provides a link to further guidance. In terms of rates, this provides an overview of the scope of the reduced rate for each of the three categories. Links are then provided to the relevant notices for more specific detail.

This temporary reduced rate will create a significant benefit for much of the hospitality and tourism sector, although it is important to note the temporary reduced rate does not apply to alcoholic drinks and will therefore not significantly benefit pubs that do little or no food. The extent to which the VAT reduction will be passed on to consumers is yet to be seen and is harder in situations, for example, where menus have already been printed as the change is less than a week away.

While the UK has seen VAT changes before in the not too distant past, given the complexity of the liability of hot / cold food and eat in / takeaway rules, these changes are complex with little time to amend systems. There is also always the complexity around the mismatch between the temporary reduced rate period and VAT accounting periods. Businesses who have already received payment or issued VAT invoices in relation to qualifying supplies which will actually take place after 15 July but before 12 January 2021, will also need to consider electing to account for VAT at the lower rate.

In order to further help restaurants, cafés, pubs or other food establishments the Government has also announced the Eat Out to Help Out scheme. This will allow every diner to a 50 percent discount per head on their meal, at any participating establishment. The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal for the entire month of August 2020. Whilst non-alcoholic drinks are included, alcoholic drinks are again excluded. The Government’s guidance sets out more information about the scheme.

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