With the effect from 15 July 2020, the VAT rates on hospitality, hotel and holiday accommodation, and admission to certain attractions have been slashed from 20% to 5%. This cut is an important measure to make the leisure industry great again and to turn the consumer days out to what it was before coronavirus.
Supplies benefited from the VAT cut
The VAT rate has been cut down from 20% to 5% TEMPORARILY on the following supplies in the industries mentioned below:
- Hospitality
- Food and non-alcoholic beverages sold for on-premises consumption as in restaurants, cafes and pubs
- Hot takeaway food and hot takeaway non-alcoholic beverages
- Hotel and holiday accommodation
- Supply sleeping accommodation in a hotel or similar establishment
- Make certain supplies of holiday accommodation
- Fees for caravan pitches and associated facilities
- Fees for tent pitches or camping facilities
- Admission to certain attractions
Admissions to certain attractions are covered by the existing cultural exemption. They shall continue to enjoy the benefit of exemption as always. For all other following attractions where admission is not exempted, the reduced VAT rate of 5% shall apply:- theatres
- circuses
- fairs
- amusement parks
- concerts
- museums
- zoos
- cinemas
- exhibitions
- similar cultural events and facilities
Special situations
1. The flat rate scheme
Small businesses with a taxable turnover of less than £150,000 can opt for the VAT flat rate scheme. This scheme enables businesses to pay VAT as a percentage of VAT-inclusive turnover. The VAT flat rates have been prescribed for various businesses. However, there has been a change in the following flat rates:
| Type of Business | VAT flat rate |
| Catering services including restaurants and takeaways before 15 July 2020 and after 12 January 2021 | 12.5 |
| Catering services including restaurants and takeaways between 15 July 2020 and 12 January 2021 | 4.5 |
| Hotel or accommodation before 15 July 2020 and after 12 January 2021 | 10.5 |
| Hotel or accommodation between 15 July 2020 and 12 January 2021 | 0 |
| Pubs before 15 July 2020 and after 12 January 2021 | 6.5 |
| Pubs between 15 July 2020 and 12 January 2021 | 1 |
2. Tour Operators Margin Scheme
Businesses involved in buying and reselling travel, accommodation, and certain other services and acting in their own names, may opt for the Tour Operators Margin Scheme to simplify their calculations.
Now due to the temporary reduction in the VAT rates for hospitality and tourism, there will be changes in the mechanics of the TOMS calculation which can be found in Tour Operators Margin Scheme (VAT Notice 709/5).
3. Accounting for supplies that straddle the temporary reduced rate
For the supplies made or received completely between 15 July 2020 and 12 January 2021, the accounting of VAT can be done simply at 5%. But in some cases where payments are received or invoices issued before 15 July 2020 for supplies that take place on or after 15 July 2020, you need to refer sections 30.7.4 to 30.9.2 of VAT guide (VAT Notice 700).
4. Retail Schemes
Retail schemes are meant for retail businesses that are unable to account for VAT normal accounting. Catering businesses using retail schemes might be required to alter their accounting systems for the period 15 July 2020 to 12 January 2021.
Businesses having a bespoke retail scheme agreement, can contact their large business Customer Compliance Manager if they think any alteration is needed. For small to medium scale businesses, they can contact Kamran.Hussain@hmrc.gov.uk.
Period of the VAT cut
The temporarily reduced rate will apply to supplies made between 15 July 2020 and 12 January 2021.
For further read:
- Blog on cut in stamp rate and VAT
- Temporary stamp duty holiday
