New VAT Changes for Hospitality and Tourism: The Facts
From 15th July, the government introduced a temporary cut to VAT of 5% for the hospitality industry. This is a move by the government to give the sector a lifeline as consumer confidence grows as lockdown eases.
Here’s what you need to know about the temporary VAT cut.
Which businesses can benefit from the new rate?
The government has released a definitive list of products and places of businesses who can enjoy the 5% VAT cut. These include visitor attractions, hotels, guest houses, pubs serving food, accommodation and takeaway food.
What products and businesses are not included in the new rate?
Alcohol is one notable omission in the list, much to the dismay of publicans up and down the country.
The issues arise if you are a pub that sells both food and alcohol, and accounting for these ‘mixed supplies’ properly when completing VAT compliance reporting to HMRC.
How long will the 5% VAT rate be in place for?
The VAT cut will run from 15th July 2020 to 12th January 2021 inclusive.
HMRC expect businesses to manage the change via the VAT returns correctly, which means as a small business, your accounting systems need to be on par.
If you’re a business selling mixed supplies, there will be grey areas and you will need to be certain you are applying the right VAT rates across the products you sell.
There could also be an expectation from consumers to enjoy the cut in VAT at the till, but one which many businesses will not pass on, but instead use as a much needed cash flow post lockdown.
What businesses should look out for
There are a few situations where businesses will need to consider their VAT position, for example when a customer has already made a deposit for a service or product, such as hotel accommodation. What if the accommodation dates fall within the reduced rate timescale of 15th July to 12th January? What VAT do you charge?
Help is here
HMRC have issued guidance on the temporary change to VAT for hospitality and tourism but does rely on some knowledge of VAT charges and VAT compliance reporting. As tax experts, the team here can help you understand your VAT liabilities.
If we go back to the pub example, a place that sells mixed supplies, we can essentially help you separate what you’ve sold at 5% and 20%.
The big positive!
The move to cut VAT will make a huge difference to businesses looking to get back to normal post pandemic; indeed, a VAT cut has been called for for years in the hospitality sector and this a positive move by the government, even if it is only temporary.
