WHA Associates provides summary & guidance on VAT changes

On 8 July 2020, as highlighted in our previous post, the Chancellor, Rishi Sunak, announced a six-month reduction in the VAT rate on supplies of food and non-alcoholic drinks from restaurants, pubs, bars and cafés.  The Chancellor also announced that the same VAT reduction would apply to supplies of accommodation and admission to tourist attractions.

The rate cut would be 15% (taking the rate from 20% to 5%) and will take effect on 15 July 2020. This reduction will remain in place until 12 January 2021 and is designed to support businesses and jobs in the hospitality sector across the UK.

Companies within the Domestic Travel Industry have responded favourably and have welcomed the changes as a boost to an struggling sector.

Overview

As part of the temporary changes, the following supplies will benefit from this temporary 5% reduced rate of VAT:

  1. food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs.
  1. hot takeaway food and hot takeaway non-alcoholic beverages.
  1. sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.

But how will the changes affect you and your business?

In light of the imminent changes there are a number of measures you and your business will have to adopt:-

  1. You will need to review your systems to ensure that the correct amount of VAT is charged to customers, and reported to HMRC. Such changes would have to be made to back office systems, online booking engines and payment systems.  We suggest that you contact providers to ensure rates are correctly adjusted.
  2. Will the new rate change have an effect on your pricing? Will the rate reduction be passed onto consumers.
  3. Changes to sales invoice templates and VAT till receipts, and correct rates used within accounting systems.
  4. Keep the 21st January 2021 change over in mind and plan the same changes when the deadline is reached.

A number of these changes, although time consuming, can be straight forward to implement, but what if you use one of HMRC’s special schemes for VAT.

With this in mind, please note the following:

The Flat Rate Scheme

You should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT.  HMRC will be publishing this guidance imminently.

https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

Tour Operators Margin Scheme

The temporary reduced rate for hospitality and tourism will have an effect how you work out your TOMS calculation for VAT purposes.

The temporary reduced rate applies to the follow supplies:

  1. In the course of catering.
  2. To hotel accommodation.
  3. To shows and similar attractions.

What is not included?

Please note, that the reduced rate does not apply to making arrangements of such supplies so where you make margin scheme supplies the margin remains taxable at either standard rate or zero-rate, such as services sold within TOMS.

What is included?

Qualifying In-house supplies provided within a TOMS package will qualify and be subject to the temporary reduced rate.

Additional points

Relevant supplies you buy in will be subject to the reduced rate, which although not recoverable as input tax will reduce the cost applied to the margin itself.

VAT liability of the Margin

The temporary reduced rate does not apply to the margin.

The VAT liability of in-house supplies included within a Margin Scheme package is not affected by these rules.

Please keep an eye on the “tax point date”.  This is in effect the date in which the service is supplied, so you will need to ensure that you have correctly applied the changes to supplies before, during and after the 6 month reduced period.  This is important structure when making your final TOMS calculation.