The government has issued guidance on the reduced VAT rate for the leisure and tourism sectors.
As part of the government’s approach to support economic recovery, the Chancellor announced a temporary cut in the rate of VAT, from 20% to 5%, from the 15 July 2020 to 12 January 2021 for the leisure and tourism sectors. VAT is a complex area and there are many regulations that govern a myriad of circumstances. We can help you to clarify your own position, so please do get in touch.
In the meantime, in general terms, the 5% temporary VAT rate applies to:
- supply food and non-alcoholic drinks for consumption on your premises
- supply hot takeaway food and hot takeaway-non-alcoholic drinks
- supply sleeping accommodation in a hotel, inn, boarding house or similar establishment
- make certain supplies of holiday accommodation
- charge fees for caravan pitches and associated facilities
- charge fees for tent pitches or camping facilities
- if your admission fee is currently exempt, it remains this way
- if you currently pay VAT on admissions at the standard rate, the 5% temporary rate will apply. Examples include shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions, similar cultural events and facilities, and attractions. Admissions to sporting events are specifically excluded
- If goods are supplied as part of the admission fee and are incidental to the main supply, the whole supply is eligible for the temporary reduced rate e.g. brochure supplied with exhibition entrance fee
- Live online performances – not a pre-recorded event – may qualify for the temporary reduced rate, dependent on the circumstances. Check 741A Place of Supply of Service
Specific VAT Schemes
If your business uses either of the following schemes to simplify your VAT calculations, be aware that certain percentages will be reduced, affecting your calculation throughout the temporary VAT rate reduction period.
- The Flat Rate Scheme. Simplified VAT scheme, allowing businesses with turnovers less than £150,000 (excluding VAT), to pay a fixed rate of VAT based on sales, rather than paying or claiming back from HMRC the difference between the VAT you charge your customers and the VAT you pay to your suppliers.
- The Tour Operators Margin Scheme. A simplified VAT scheme for those that buy in and resell travel or accommodation without having to register and account for tax in each EU member state where the services and goods are enjoyed.
What do you need to do?
If your business is affected you will need to:
- Identify affected income streams and adjust VAT accounting accordingly
- Decide whether to pass on some or all of the saving to consumers in reduced prices, or retain the benefit
- Consider how to track sales at the reduced rate of VAT, adjusting VAT accounting software where necessary
- The time of supply for VAT calculations will have an impact. For payments received before 15 July for bookings between 15 July and 12 January, VAT will have been accounted for at 20%. An adjustment can be made to reduce the rate to 5%, generating a VAT saving. Pre payments taken for stays after 12 Jan, will also be charged at 5% VAT rate, giving businesses the opportunity to offer advanced booking discounts at no cost to the business.
We can help you to identify affected income streams and adjust your VAT accounting accordingly as well as helping to prepare or reviewing your VAT returns, particularly those including the 5% reduced rate of VAT. If you need our help, please do get in touch.
And finally, food for thought:
Craig Simpson, Tax Partner at Bates Weston, considers the question of passing on the VAT saving to consumers:
“The reduction in VAT is welcome step for the hospitality sector. It remains to be seen whether this saving is passed on to consumers or whether businesses will retain the benefit of the reduced VAT rate by charging the consumer the same price and just passing on the lower amount of VAT to HMRC. Ultimately the business would make a greater profit and where demand is high in holiday hot spots in the UK it is difficult to see hoteliers reducing room rates. Businesses could meet the consumer halfway and pass on some of the saving, retaining the rest to help provide additional cash to maintain employment. The compliance burden of a change of rate may be challenging for some in the hotel sector where deposits and advance room payments have been made and customers may be expecting a reduced rate of VAT on their stay. Overall a positive move but it should not be assumed all the benefit will go to the consumer.”