The Chancellor announced various reliefs in the Budget 2021. If you’re a VAT registered business then you may be able to temporarily reduce the rate of VAT on supplies relating to hospitality, accommodation, or admission to certain attractions.
The Chancellor has confirmed that the government will be legislating to:
The supplies to which the temporary reduced rates will apply remain the same. The government made an announcement on 8 July 2020 allowing VAT registered businesses to apply a temporary 5% reduced rate of VAT to certain supplies relating to:
The temporary reduced rate will apply to supplies that are made between 15 July 2020 and 31 March 2021.
These changes are being brought in as an urgent response to the coronavirus (COVID-19) pandemic to support businesses severely affected by forced closures and social distancing measures.
Hospitality
Those who supply food and non-alcoholic beverages for consumption at their premises, for example, a restaurant, café or pub, you’re currently required to charge VAT at the standard rate of 20%. However, supplies made between 15 July 2020 and 31 March 2021 will only need to charge 5%. The reduced rate of VAT can also be charged on supplies of hot takeaway food and hot takeaway non-alcoholic drinks. More information about how these changes apply to your business can be found in Catering, takeaway food (VAT Notice 709/1).
Hotel and holiday accommodation Under this category, the Traders may benefit from temporary reduced rate if they:
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supply sleeping accommodation in a hotel or similar establishment
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make certain supplies of holiday accommodation
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charge fees for caravan pitches and associated facilities
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charge fees for tent pitches or camping facilities
More information about how these changes apply to your business can be found in Hotels and holiday accommodation (VAT Notice 709/3).
Admission to certain attraction Attractions that charge a fee and the supply is standard rated then they may benefit from temporary reduced rate of VAT between 15 July 2020 and 31 March 2021.
However, if the fee they charge for admission is currently exempt that will take precedence and their supplies will not qualify for the reduced rate.
More information about how these changes apply to your business can be found in VAT:Admission charges to attractions.
The Flat Rate Scheme
Small businesses that use the Flat Rate Scheme to simplify their VAT calculations should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT. More information can be found in VAT Flat Rate Scheme.
The Tour Operators Margin Scheme
Businesses that buy in and resell travel, accommodation and certain other services, and they act in their own name, may operate the Tour Operators Margin Scheme to simplify their calculations. Further information about how the introduction of the temporary reduced rate of VAT will affect your calculations can be found in Tour Operators Margin Scheme (VAT Notice 709/5).
Accounting for supplies that straddle the temporary reduced rate
In most cases, traders will simply account for VAT at 5% for supplies made between 15 July 2020 and 31 March 2021. However, there may be situations where they receive payments or issue invoices before 15 July 2020 for supplies that take place on or after 15 July 2020. More information about this can be found in sections 30.7.4 to 30.9.2 of VAT guide (VAT Notice 700).
Retail schemes
Catering businesses using retail schemes may have to alter their accounting systems for the period 15 July 2020 to 31 March 2021. If a trader has a bespoke retail scheme agreement, they should review it and if they think an alteration is needed then they are encouraged to contact their large business Customer Compliance Manager, or if they are not a large business customer then they should contact Kamran.Hussain@hmrc.gov.uk.
Catering businesses operating the catering adaption
If a trader has a turnover of between £1 million and £130 million and they are using a catering adaption method previously agreed with HMRC then they may alter the scheme without prior agreement for the period providing the calculation gives a fair and reasonable result. They must then revert back to their previous scheme. They should keep the records of how they altered the scheme as part of their business records. To find out more about catering adaption, read section 7 of in Notice 727.
Caterers using the direct calculation scheme
If all the sales of a trader are at the reduced rate then the reduced rate will apply to their daily gross takings during the period. However, if they have mixed supplies and their till is not programmed to account for different rates then they may adopt the principles of the direct calculation scheme, if appropriate, to the standard rated goods. Otherwise they should make a fair and reasonable apportionment and retain their workings as part of their business records.
Should you have any questions as to any of the above then do not hesitate to contact the writer with questions.
HAMMAD BAIG © 2021
BARRISTER
33 BEDFORD ROW
Hammad practices, international trade law, tax law and commercial litigation with a specific interest in VAT and Customs and Excise Law.
Further articles on topics relating to Hammad's practice areas, can be read under his Insights, and on Hammad’s blog. Should you wish to instruct Hammad, then please do not hesitate to contact his clerk Mark Byrne.
NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.