Yesterday, chancellor Rishi Sunak, announced measures to help the hospitality and tourism industries get back on track by temporarily cutting VAT rates from 20% to 5%.
Many other measures were announced at the same time as part of the ‘Plan for Jobs’ initiative to help support businesses and the economy after the impact of COVID-19.
When will the VAT cut start?
The reduction will happen from Wednesday 15th July and will be in place until 12th January 2021. The hope is this will help combat the effects of a delayed summer trading season.
Food and Drink
The reduced rate of 5% will apply to food and drink (non-alcoholic) sold within the hospitality industry. It’s applicable to eat-in and hot takeaway food. Cold takeaway food remains zero-rated. The reduced rate is allowed to be applied by restaurants, pubs, cafes and similar venues.
Accommodation and attractions
Supplies of accommodation such as hotels, B&B’s and campsites and entry to attractions such as zoos, theme parks and cinemas will all be able to reduce the VAT on their entry fees.
What should you be doing now?
So there is a short time frame between the announcement and the changes taking effect. In that time you need to ensure you have everything ready to charge the correct amount of VAT and capture the information successfully for your VAT returns. Some key areas to focus on:
- Consider the impact on your margins. Will you pass on the savings, use it to achieve better margins or somewhere in between?
- Update your sales systems to charge the correct amount of VAT so it reports correctly in your VAT returns
- Note that these changes (the start and end of the scheme) happen mid-month. Good systems need to be in place with reminders to make changes at the end of the scheme too.
At this stage, like all the recent announcements relating to COVID-19 support, the details are limited. HMRC plan to release more detailed guidance over the coming days. We will update this article with any relevant changes once they are released.
If we handle your bookkeeping or VAT then we will ensure we have everything behind the scenes sorted for you so there is no need to worry. If you’d like more advice or guidance then please do reach our to our VAT team.