The Chancellor’s Summer Economic Statement, delivered on 8 July, contained various measures to support hospitality and leisure businesses during the coronavirus emergency. They include a targeted temporary VAT rate cut for supplies of hospitality, hotel accommodation and admission to attractions. As a result, a wide range of supplies, which are normally subject to VAT at the standard rate of 20 per cent, are eligible for the reduced VAT rate of 5 per cent until 12 January 2021.
HMRC has now published legislation and detailed guidance on how the reduced rate applies to businesses operating in these sectors. Restaurants and similar food outlets will also have to consider the VAT implications of the Government’s ‘Eat Out to Help Out’ discount scheme which applies to certain eat-in meals during August 2020.
VAT is already complex for these sectors and the addition of these new rules , along with the speed of the change, means that careful consideration will have to be given to ensure the benefits are maximised without error.
Restaurants, pubs, bars, cafes and hot takeaway food outlets
The 5 per cent reduced rate of VAT applies to food and non-alcoholic drinks sold for on premises consumption in restaurants, pubs, bars, and cafe s. It also applies to hot takeaway food and hot takeaway non-alcoholic beverages for consumption off the premises. However, there are some areas which are likely to cause confusion for the hot food sector.
- The guidance states that catering contracts, which appears to refer to buffets or meals for meetings and private events held off premises, will not be eligible for the reduced rate and remain subject to VAT at 20 per cent.
- Cold drinks, such as canned soft drinks, sold as a take away item will not be covered by the reduced rate.
- HMRC's guidance states that obligatory service charges (as opposed to tips, which remain outside the scope of VAT) are subject to VAT at the standard rate.
The ‘Eat Out to Help Out’ scheme
The ‘Eat Out to Help Out’ discount scheme entitles diners to a 50 per cent discount of up to £10 per head (including VAT) on any eat-in meal purchased at a participating venue on a Monday, Tuesday or Wednesday during August 2020. Service charges and alcoholic drinks are not included in the amount eligible for the discount.
Businesses will be reimbursed for the discount by the Government through an online scheme and must still account for VAT based on the full amount of the customer’s bills.
Pubs and restaurants will have either reconfigured their till systems to ensure that they account for VAT correctly, or else should take account of relaxations announced by HMRC allowing adjustments to be made subsequently to calculate the correct VAT liability. The VAT position is likely to be even more complex for those who offer multibuy deals including meals and alcohol, and larger pubs, that must perform partial exemption calculations as a result of VAT exempt income from gaming machines.
Admissions to attractions
The temporary reduced rate of VAT also applies to admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities. However, the reduced rate does not apply to admissions to sporting events. Also, not for profit organisations and public bodies running attractions and events that qualify for the ‘cultural services’ VAT exemption must apply the exemption, rather than the reduced rate.
Organisations that charge admission fees to view online live performances may also be eligible for the reduced rate. HMRC also reminds promoters of online events that fees charged to non-EU customers may be outside the scope of UK VAT altogether .
Hotels and travel businesses
For the travel sector, the reduced rate of VAT applies to supplies of sleeping accommodation in hotels, bed and breakfast accommodation, campsites and caravan sites. Hotel restaurants are also included in the Eat Out to Help Out discount scheme but room service and catering for private functions are not.
Hotels and holiday businesses that have already accounted for VAT at 20 per cent on advance bookings for stays between 15 July 2020 to 12 January 2021 have the option of applying the 5 per cent rate and issuing a credit note to the customer to refund the overpaid VAT.
For tour operators, the reduced rate of VAT does not apply to the margin calculated under the Tour Operators Margin Scheme (TOMS), so margin scheme supplies remain taxable at either the standard rate or zero-rate. However, in-house and bought-in supplies, which are excluded from TOMS are subject to the temporary reduced rate. This will therefore increase the margin and the amount of VAT payable to HMRC. HMRC has updated the market value and cost based calculation formulae in its public notice to take account of this.
For more information please contact Philip Munn.