VAT on sales is being reduced for hospitality, hotel and accommodation and attractions businesses. The reduction is substantial – down to 5%. It is effective from Wednesday – 15 July – and will last until 12 January 2021. Both these dates are in the middle of a month so you need to be careful.
If your business falls into one of these categories, you need to ensure you keep records because it is likely that not everything you sell will have the reduced rate.
If your business supplies hospitality, hotel and holiday accommodation or charge admission to certain attractions (and you are VAT registered) you will be affected.
HMRC is updating its detailed guidance so this can only be a summary. If you have any doubt, please refer it.
What does the reduction cover?
- Food and non-alcoholic beverages sold for on-premises consumption. If it is sold for consumption on the premises, this would seem to include cold beverages
- Hot takeaway food and hot takeaway non-alcoholic beverages. (We think this means that coffee/tea taken away will be ok, but a can of soft drink will not be)
- Any food supplied as part of a catering service will still be subject to VAT at standard rate.
- Sleeping accommodation in hotels, guest houses etc – including holiday accommodation, caravan & tent pitch fees (an associated facilities). The guidance doesn’t mention mooring fees for boats but our guess is that these will be included – however, best to be safe and check if this applies to you.
- Admission to attractions such as theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events/facilities.
- If the attraction is eligible for the Cultural VAT exemption scheme, that will take precedence.
What do I need to do?
The simple answer is – “KEEP RECORDS”.
That might not be as easy as it sounds.
- If you operate a till or EPOS system with different VAT rates, you might need to reprogram the till.
- If you keep records manually, we recommend that you clearly identify the items sold at different rates.
- Where you are using online bookkeeping/accounting software, you may need to set up a new VAT code.
For businesses providing accommodation (including caravan & camping pitches), there may be a situation where the VAT rate changes part way through the stay. There is no guidance on this (at least none that we can see – yet) so our inclination is to split the supply.
Should I reduce my prices?
There is nothing which says you must reduce your prices. Reducing your selling price might attract more customers. On the other hand, keeping your retail price the same generates more profit for you.
If you currently sell something at £10 including VAT, you will currently collect and pay over, £1.67 in VAT.
With the new 5% rate, you will only pay over 49p. So, if you don’t reduce your prices, you will have an extra £1.18 profit.
We have heard of establishments taking both approaches. It is your decision.
We will, of course, provide help and support where needed. Existing clients will always take precedence but we will try to help non-clients if they can’t contact their own accountant.
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