What has happened?
On the 8th July 2020, the UK government announced that it would be introducing a temporary reduction in the rate of VAT for certain supplies of hospitality, holiday & hotel accommodation and admissions to certain attractions.
They will be slicing the rate of VAT payable from the normal standard rate of 20% down to 5% which will take effect from the 15th July 2020 through to the 12th January 2021.
Here’s what will benefit from the temporary reduced 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 such as theatres, fairs, amusement parks, museums, concerts, zoos, cinemas etc. that are not already eligible for the cultural VAT exemption
Why has this happened?
HM Treasury has decided to cut VAT rates in the above sectors as a way to help stimulate the economy in the wake of the coronavirus crisis.
This measure aims at helping businesses that have struggled to remain open and who now face lower incomes due to the inability to serve large volumes of customers because of social distancing measures
Who will this benefit?
Eligible VAT registered businesses can benefit from being able to apply the reduced rate to their sales – this will definitely be the case if lower rates of VAT are not passed onto consumers in the form of price reductions.
This could be used as a way by companies to bolster their finances over the next 6 months and help them recover from the lost revenues suffered due to the coronavirus.
On the other hand, this cut in VAT could also benefit consumers – again, businesses applying reduced rates to their supplies would be able to pass this cost-saving on to the customer in the form of reduced prices, making these products & services far more affordable.
A point to note is that any accommodation booked/food purchased in the course of your day to day work will have a different VAT rate so be sure to check your receipts to make sure you aren’t reclaiming too much VAT!
Does this affect the Flat rate scheme?
Yes, it does – specific industry percentages have been reduced in line with the introduction of the temporarily reduced rate of VAT.
HMRC have confirmed percentages for businesses most affected by the Coronavirus pandemic.
- Catering services including restaurants and takeaways rate changed from 12.5% to 4.5%
- Hotel or holiday accommodation from 10% to 0%
- Pubs from 6.5% to 1%
For more information please visit the following link or give us a call!
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