HOSPITALITY VAT REDUCTION

Hospitality VAT: When the Chancellor announced a temporary cut in the rate of VAT for the hospitality sector and attractions in his Summer Statement on 8 July there were a number of areas that needed clarification. The reduction applies to supplies made between 15 July 2020 and 12 January 2021. HMRC have now set out more details of which supplies will attract the 5% temporary rate as well as the impact on invoicing, deposits and the flat rate scheme.

HOSPITALITY VAT: WHAT DOES THE 5% TEMPORARY VAT RATE APPLY TO?

The temporary 5% rate applies to catering, including hot food takeaway, accommodation in hotels, guest houses and similar places and to tourist attractions such as zoos, cinemas and theme parks. Please note this is not an exhaustive list.

HOSPITALITY VAT: WHAT TYPES OF DRINKS DOES THE RATE APPLY TO?

Note that as far as catering is concerned, the 5% rate only applies to food and non-alcoholic drinks. The 20% rate continues to apply to alcoholic drinks. Please contact us if you are unsure as to whether the 5% rate applies to any of your supplies.

HOSPITALITY VAT REDUCTION: WHAT ABOUT DEPOSITS?

It is fairly common, particularly in the summer holidays, to pay a deposit when booking a hotel or self-catering accommodation but how should the deposit be accounted for? HMRC have confirmed that the hotel has the option of charging VAT according to the ‘basic tax point’ (dates of the stay) rather than the ‘actual tax point’ (invoice/payment dates).

EXAMPLE VAT DEPOSIT SITUATION

For example where the customer paid a non-refundable £300 deposit in February 2020 for a £1000 holiday in Cornwall in August, using the actual tax point, the hotel would account for 20% VAT on the deposit received in February 2020 and 5% on the balance payable after 15 July 2020. The hotel could choose to use the basic tax point rule which would mean that the 5% rate would apply to the entire cost of the stay and make an adjustment for the VAT already accounted for.