HMRC has published further guidance on the application of the temporary 5% reduced rate of VAT. The following supplies will benefit from the reduced rate:

• Food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes, and pubs.
• Hot takeaway food (such as pizzas) and hot takeaway non-alcoholic beverages (including tea, coffee, and hot soup).
• Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.

In addition, admission fees to the following attractions will also benefit:

• Theatres
• Circuses
• Fairs
• Amusement Parks
• Concerts
• Museums
• Zoos
• Cinemas
• Exhibitions
• Similar Cultural Events and Facilities 

Where admission to these attractions is covered by the existing cultural VAT exemption, this exemption will take precedence.  Admission to sporting events are specifically excluded from the changes.  

Accounting for supplies that span the temporary reduced rate of VAT

In most cases, you will simply account for VAT at 5% for supplies made between 15 July 2020 and 12 January 2021. However, there may be situations where you receive payments or issue invoices before 15 July 2020 for supplies that take place on or after 15 July 2020, and further consideration needs to be given to the correct VAT rate.

What does this mean for you?

Businesses operating in the hospitality and tourism sectors will need to determine if their supplies fall within the scope of the reduced rate of VAT.  To do this you must consider the following:

• Is the supply within the ordinary meaning of catering?
• Is the supply made for on-premises consumption?
• Is it hot takeaway food?
• If you are not a hotel do you qualify as a similar establishment?
• Are you providing accommodation?
• What is the impact on Tour Operators Margin Scheme where mixed VAT rate supplies are made, for example, car hire as part of a U.K. packaged holiday? 
• In addition, you will need to think about the VAT treatment of supplies which span the rate change alongside, deposits or prepayments received and service charges levied.

How can A&M help?

A&M has extensive experience of working with businesses on systems and process changes following changes in VAT rates. We can work with you to understand if your supplies fall within the scope of the reduced rate of VAT, how to treat payments which span the period and categorizing characteristics applicable to your business model to ensure you meet your VAT obligations.  Please contact us or your usual A&M VAT adviser.