VAT Reduction – Special treatment for hospitality sector (restaurants, cafes, bars)
8 October 2020
As a way to help the suffering hospitality industry Rishi Sunak announces a 6 month reduction in VAT on the supplies of food and non-alcoholic drinks in pubs, restaurants, bars and cafes. The reduction has been further extended to supplies of accommodation and tourist attractions. The reduction applies from the 15th July 2020 to the 12th January 2021.
VAT Reduction for hospitality sector (restaurants, cafes, bars) overview:
As part of the temporary changes, the following supplies will benefit from this temporary 5% reduced rate of VAT:
• Food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs.
• Hot takeaway food and hot takeaway non-alcoholic beverages.
• Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.
• Admissions to attractions that are not already benefitting from Vat exemptions (eg zoos, museums, concerts etc).
The Flat Rate Scheme
If you are on the flat rate scheme then please visit the HMRC website to see the new reduced rates you should be using: https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay
What should you do if your business has benefited from the VAT reduction?
It must be said HMRC does like to choose strange dates to make drastic changes to VAT rates, which does not always make it easier to help administer the changes. That said, I think we should also be thankful for the help given. Here is what you should do to make sure your next VAT return is calculated correctly:
• Back office review– check your accounting system or EPOS system to make sure it is updated to reflect the new VAT rate and the date it is implemented. If you do not have an EPOS system and using traditional bookkeeping methods, then at the very least make sure you keep a notes of sales that qualify for 20% and 5% VAT.
• Sales invoice– check your sales invoice shows the correct VAT paid for the sale. Many systems may not be equipped to show different tax rates.
• Pricing– review how the new VAT rates effects your pricing. Will you be reducing your prices and passing on the discount or keeping this to yourself.
• Will not last forever– make a note of the date the VAT rate reverts back to standard rate. If you are fortunate enough not to experience a downturn in trade, then you will surely benefit from the VAT reduction and should see more cash in the bank. Remember this is only temporary so please do not use this extra income to commit to other long-term expenses or commitments that you may not be able to afford later.
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