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Summer economic update 2020: VAT announcements to support the hospitality and tourism sectors

The standard VAT rate will be reduced from 20% to 5% from 15 July to 12 January 2021, for supplies of food and non-alcoholic drinks by restaurants, pubs, bars and similar premises. This will also apply to the supply of hotel and holiday accommodation and attraction admissions.

Last updated: 9 July 2020

Oliver Dowden, Secretary of State for Culture, Media and Sport, posted on Twitter to share that the VAT cut for "attractions" is intended to apply to "shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, and exhibitions." However many theatres, museums, galleries and zoos are not for profit organisations, which already have VAT exemption on admission charges. 

Full details of the temporary changes, which businesses they will apply to and how, have yet to be published by HMRC. It will be interesting to see whether businesses in these sectors reduce prices to reflect the reduced rate to benefit the consumer or leave prices the same, thus benefiting the supplier.

In either case, it could be argued there will be a boost to the sector, supported by the new Eat Out To Help Out scheme, which will encourage people to eat out Mondays-Wednesdays throughout August, and in return, they will receive a 50% discount, of up to £10 per person (the scheme does not apply to alcoholic drinks). 

However, the boost from these announcements may not be all that it seems. Cold takeaway food is already zero rated, and many attractions such as the zoos the Chancellor mentioned in his speech, do not charge VAT on admission. Pubs will only benefit in relation to soft drinks and food sales as the reduced rate will not apply to alcoholic drinks. Therefore, in some cases consumers will not notice much change.

What can businesses expect?

There will be administrative costs for businesses in adapting prices, tills and accounting systems to reflect the temporary change in time for next week, particularly as the period of change starts and ends in the middle of the month, making life difficult for the completion of VAT returns. Some businesses which currently only account for 20% VAT may have to change their retail VAT accounting scheme.

What should businesses do?

There are likely to be a number of practical and administrative issues to consider in relation to the VAT reporting requirements of the temporary changes, both for implementation and when the ‘holiday’ period comes to an end. It is hoped that the published guidance when it is available will confirm the extent of the measures and, in particular, how they will apply. 

Click here to see HMRC's guidance regarding the new Eat Out To Help Out scheme. Participating businesses are still required to account for VAT on the full amount of the customer's bill. 

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Last updated: 9 July 2020

Oliver Dowden, Secretary of State for Culture, Media and Sport, posted on Twitter to share that the VAT cut for "attractions" is intended to apply to "shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, and exhibitions." However many theatres, museums, galleries and zoos are not for profit organisations, which already have VAT exemption on admission charges. 

Full details of the temporary changes, which businesses they will apply to and how, have yet to be published by HMRC. It will be interesting to see whether businesses in these sectors reduce prices to reflect the reduced rate to benefit the consumer or leave prices the same, thus benefiting the supplier.

In either case, it could be argued there will be a boost to the sector, supported by the new Eat Out To Help Out scheme, which will encourage people to eat out Mondays-Wednesdays throughout August, and in return, they will receive a 50% discount, of up to £10 per person (the scheme does not apply to alcoholic drinks). 

However, the boost from these announcements may not be all that it seems. Cold takeaway food is already zero rated, and many attractions such as the zoos the Chancellor mentioned in his speech, do not charge VAT on admission. Pubs will only benefit in relation to soft drinks and food sales as the reduced rate will not apply to alcoholic drinks. Therefore, in some cases consumers will not notice much change.

What can businesses expect?

There will be administrative costs for businesses in adapting prices, tills and accounting systems to reflect the temporary change in time for next week, particularly as the period of change starts and ends in the middle of the month, making life difficult for the completion of VAT returns. Some businesses which currently only account for 20% VAT may have to change their retail VAT accounting scheme.

What should businesses do?

There are likely to be a number of practical and administrative issues to consider in relation to the VAT reporting requirements of the temporary changes, both for implementation and when the ‘holiday’ period comes to an end. It is hoped that the published guidance when it is available will confirm the extent of the measures and, in particular, how they will apply. 

Click here to see HMRC's guidance regarding the new Eat Out To Help Out scheme. Participating businesses are still required to account for VAT on the full amount of the customer's bill. 

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