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VAT rate temporarily reduced to 5% - considerations for the arts, culture and hospitality sectors

On 8 July, the Chancellor announced a temporary reduction in the VAT rate from 20% to 5% from 15 July 2020 to 12 January 2021, for admission to attractions, holiday accommodation and sales of food and non-alcoholic drinks, as a means to boost the tourism and hospitality sector. 

Last updated: 14 July 2020

HMRC have shared the latest VAT guidance, and here we relay our advice on what actions your organisation needs to take, to remain VAT compliant and maximise VAT efficiency at a time when cost savings are crucial.

Click the drop downs below to read more on admission, hospitality and accommodation. 

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Linda Skilbeck

+44 (0)20 8037 3114
skilbeckl@buzzacott.co.uk
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Last updated: 14 July 2020

HMRC have shared the latest VAT guidance, and here we relay our advice on what actions your organisation needs to take, to remain VAT compliant and maximise VAT efficiency at a time when cost savings are crucial.

Click the drop downs below to read more on admission, hospitality and accommodation. 

Admission

Admission

The temporary VAT reduction for admission to attractions will apply to commercial bodies, and may be relevant to some charity venues that charge VAT. However, if a venue is not for profit and admission is currently exempt under the cultural exemption, the exemption will take precedence and admission charges will not qualify for the reduced rate.

HMRC’s guidance states that the 5% rate will apply to admission charges received from 15 July to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions, and other cultural events and attractions such as planetariums, botanical gardens, studio tours and factory tours. However, the 5% rate does not apply to admission to sporting events.

Tickets sold in advance

If you have sold tickets for admission or performances in advance of the event and before the 15 July, you may have thought that you would be entitled to charge 5% if the event takes place during the temporary reduction period. However, you’ll need to consider the ‘tax point’ (the date tax is due) rules for services. Ordinarily the basic tax point for a supply of services is the date the service is ‘performed’.

However, the basic tax point is over ridden by an ‘actual’ tax point (receipt of payment or issue of a VAT invoice) where that occurs before the basic tax point. There are special rules for ‘supplies spanning the change in the VAT rate’ which allow that where payment is received or a VAT invoice issued before 15 July 2020, but the services are performed on or after that date, VAT can be accounted for using the basic tax point, which would be the rate due after the rate change (now 5%). 

HMRC’s view however, (explicit in previous guidance issued when the VAT rate changed in 2008 and 2011) is that the sale of tickets is the sale of a ‘right to attend’, and the right is granted (‘performed’) when the ticket is sold, not when the event itself takes place. Therefore, if a customer purchased a ticket in June 2020 for a concert in October 2020, the tax point is the earlier of those dates and VAT is due at 20% in all circumstances.

What should you do?

For all tickets sold before 15 July for events or performances that will take place during the temporary reduction period, you should account for VAT at 20%. This would also apply to annual passes.

Mixed supplies

HMRC state that where goods are part of the admission fee and are incidental to the main supply, the whole supply is eligible for the temporary reduced rate of 5%. The example given is a brewery tour, which includes incidental food and drink, i.e. where the main purpose of the tour does not include food and drink. This is always a tricky area in VAT and its likely there may be some grey areas. It has to be hoped that HMRC will not be too dogmatic about any claims that arise.

Membership or admission?

Many museums, galleries and cultural venues sell membership packages, which offer unlimited annual admission along with a number of other benefits, such as discounts and invitations to member events. It could be argued that where the admission is the main benefit for the customer, the 5% rate should apply. 

What should you do?

Before claiming 5% for membership packages, we would strongly recommend that you discuss your circumstances with one of our VAT experts, as it remains to be seen whether HMRC would accept this, because “membership” is normally regarded by them as a separately identifiable supply in its own right. The extent and value of the additional benefits may be relevant.

Online events and performances

Whether the admission relief is going to be of significant benefit to the sector depends greatly on the ability of venues (particularly theatres and concert venues), to re-open buildings for live audiences on a viable basis in adherence with government guidelines issued for COVID-19. HMRC have included a reference to admissions to live online performances, which have been the main way for venues to open without a live audience. However, the VAT guidance on this is limited.

It’s important to note that selling access to watch a live event online is subject to entirely different VAT rules to selling admission to your venue. 

When online access is granted to consumers to participate in events, it is treated as digital service which is liable to VAT in the customer’s country.  If the annual value of your total cross-border supplies of digital services to consumers in the EU in the current year and previous year is below £8,818, the place of supply is the UK and UK VAT is due. If it is over that threshold, the place of supply is where the consumer is located. In this circumstance, only tickets sold to UK consumers would be liable to the temporary 5% rate and ticket to EU consumers would be liable to the VAT rate in their country. 

This requires UK suppliers of digital content or broadcasts to either register in each EU member state where customers are based, or register and account for EU VAT under the VAT Mini One Stop Shop (‘MOSS’) system in the UK. 

What should you do?

If you are not already registered for VAT MOSS you should check your liability to be registered. The UK’s MOSS is due to end on 31 December 2020 due to the end of the transitional regime, so you may need to re-register for the scheme in another EU country as a non-EU supplier after that. If you are affected by the above, get in touch with one of our VAT experts for specialist advice.

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Hospitality

Hospitality

Hospitality refers to the food and non-alcoholic drinks sold on your premises – e.g. in cafes, restaurants or bars; and also takeaway hot food and hot non-alcoholic drinks. The temporary VAT rate of 5% covers:

  • All on-site food and drink (catering) except for alcoholic drinks, which remain at 20%
  • Take away sales of hot food and hot non-alcoholic drinks
  • Food and non-alcoholic drinks sold as part of any catered events such as weddings and conferences

There are some complexities if you have cold takeaway sales, because certain cold takeaway foods are zero-rated (such as salads and sandwiches) and some are standard rated (such as confectionery and crisps). This will lead to the odd consequence that a packet of crisps sold at a diner in your café will be 5% but one taken off-premises will be liable to 20%.

What should you do?

Your till systems will need to be coded with three rates of VAT and be able to distinguish takeaway from eat-in. If you are using a contract caterer who supplies food to customer as principal in your venue, any commission received from the caterer will still be standard rated at 20%.

Eat Out to Help Out scheme

The government’s Eat Out to Help Out scheme will entitle diners to a 50% discount on food excluding alcoholic drinks, of up to £10 per head, at any participating restaurant café or food service establishment on Mondays to Wednesdays from 3 - 31 August 2020. Cultural and heritage venues and charities can register if they sell food on the premises in their own dining areas. Registration became available on 13 July and will close on 31 August. 

What you should do?

If your venue registers for the Eat Out to Help Out scheme, the government will reimburse the full discount provided but you are required to account for VAT on the full value of the meal. 

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Accommodation

Accommodation

The temporary reduced rate for accommodation includes sleeping accommodation (including bathrooms, living rooms and suites, in a hotel, inn, boarding house, or similar establishment), accommodation used for the supply of catering (such as weddings and dinners), rooms provided with sleeping accommodation and lettings of holiday accommodation (such as cottages and caravan and camp sites). 

Deposits

If you have received deposits for accommodation or catering (e.g. for a wedding) before 15 July, where the stay or the catering will be provided during the temporary rate reduction period (15 July 2020 - 12 January 2021) the change of rate rules allow you to treat the whole charge as 5% rated. If you have issued a VAT invoice for 20% on the deposit, you are required to issue a credit note for the 20% VAT and refund the customer within 45 days. The HMRC guidance on this is in VAT Guide 700 Section 30.

Other consequences of the VAT rate change to consider

  • There will be administrative costs in adapting prices, tills and accounting systems to reflect the temporary change in time, particularly as the period of change starts and ends in the middle of the month, making life difficult for the completion of VAT returns
  • Changes to EPOS till systems, online booking engines and back-office functions need to be made, to ensure that the correct amount of VAT is charged to customers and declared to HMRC
  • Changes to information on sales invoices/VAT till receipts
  • Pricing decisions - you will need to decide whether to pass the reduction on to the consumer or hold  prices and keep the benefit – there is no legal obligation to pass it on
  • The administration involved in reverting back to 20% on 12 January 2021 and how this may impact VAT reporting for return periods that may have both 5% and 20% rate supplies
  • Some businesses, which currently only account for 20% VAT, may have to change their retail and VAT accounting scheme.

The practical systems changes required lend themselves well to the Making Tax Digital (MTD) for VAT considerations where digital links will be required from 1 April 2021 between EPOS systems and accounting packages. 

What should you do?

In light of COVID-19 along with MTD and a VAT rate change, now is a good time for the hospitality sector to prioritise VAT, to ensure both compliance and maximising VAT efficiency at a time when cost savings are particularly important.

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