While full details of the changes are not available some further details of the scope of the temporary reduced rate, applicable to supplies made between 15 July 2020 and 12 January 2021, have been provided by HMRC.
The reduced rate will cover:
- hot and cold food for consumption on the premises on which they are supplied
- hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied
- hot takeaway food for consumption off the premises on which they are supplied
- hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied
The key feature of this element of the temporary reduced rate is that supplies of food and drink have to be made on the premises. This would include restaurants, pubs and cafes and it also covers supplies of food and drink from vending machines in canteens and restaurant type areas which are to be consumed on those premises. How the reduced rate will apply to delivered hot food is not entirely clear at present.
Any food and drink that is part of a supply of catering services for consumption off-premises remain standard rated. Examples include third party catering for events and functions, such as wedding receptions, parties or conferences.
More information about how these changes apply can be found in the HMRC Notice on Catering, takeaway food (VAT Notice 709/1).
HOTEL AND HOLIDAY ACCOMMODATION
The reduced rate applies to hotels, inns, boarding houses and similar establishments if they are supplying:
- sleeping accommodation, including bathrooms, living rooms and suites
- accommodation used for the supply of catering
- rooms provided with sleeping accommodation
The term similar establishment covers any premises in which furnished sleeping accommodation is provided where this is used by, or advertised as being suitable for use by, visitors or travellers.
The temporary reduced VAT rate applies where a room is supplied for the purposes of catering even if the catering is supplied by another person. Hiring a room only, such as for a conference or meeting, is already likely to be VAT exempt if there is no Option to Tax.
The rules governing packages such as weddings are more complex but if catering is supplied in house as a separate supply it will benefit from the temporary reduced rate.
For businesses using the Tour Operators Margin Scheme the reduced rate will apply to in-house supplies but not to the margin.
The temporary reduced rate will apply to holiday accommodation supplied between 15 July 2020 and 12 January 2021.
This includes accommodation in any house, flat, chalet, villa, beach hut, tent, caravan or houseboat which is advertised as holiday accommodation or as suitable for holiday and leisure use.
Caravan pitches tent pitches and camping facilities
Caravan and tent pitches or holiday accommodation in a tent or in a sited caravan will also benefit from the temporary reduced rate.
More information about how these changes apply can be found in the HMRC Notice on Hotels and holiday accommodation
Admissions to attractions
The temporarily reduced rate applies to charges for admission to certain events including:
- shows and theatres
- fairs and amusement parks
- museums and exhibitions
- botanical gardens
- studio and factory tours
- similar cultural events and facilities
The full list of attractions which HMRC advise will qualify is set out in this guidance note.
The reduced rate only applies to the cost of admission although it does not include admission to sporting events. Where admission charges to museums, galleries etc are currently exempt under the cultural services exemption rules they will remain so.
If a type of event is specifically listed the application of the reduced rate seems clear but whether something is a similar event may require some consideration. Interestingly HMRC say admission fees charged to view an online live performance can qualify for the reduced rate.
CONSEQUENCES OF THE TEMPORARY REDUCED VAT CHANGES
If you do not issue invoices but account for VAT based on daily takings you are likely to have to make changes to ensure VAT is correctly accounted for. This may mean changing till settings or amending the way sales are recorded so that you can identify the value of reduced rate sales.
Deposits and the change of rate rules
If a deposit has been received before 15 July 2020 for goods or services that qualify for the temporary reduced rate and are supplied between 15 July 2020 and 12 January 2021 you can choose to charge and account for VAT at 5% under the special change of rate provisions. If a VAT invoice has been issued showing a 20% rate of VAT this must be adjusted by issuing a credit note.
Using the normal tax point rules
Using the special change of rate provisions is optional, businesses can choose to use the normal tax point rules. Under these rules the VAT rate applied is the one in force at the time a “tax point” is created.
A basic tax point will normally be created when payment is received or when the goods or services are supplied. This means where a deposit is taken in the temporary reduced rate period for a qualifying supply the reduced rate would apply even if the goods or services were supplied after 21 January 2021.
The basic tax point can however be overridden if a tax invoice is issued within 14 days of the basic tax point. In this case an actual tax point is created on the invoice date and the VAT rate applicable is that in force at the time the invoice is issued. If the invoice is not issued within 14 days of the basic tax point the VAT rate in force at the time of the basic tax point has to be applied.
This may provide an opportunity, albeit limited, to apply the reduced rate to some supplies that are made before 15 July 2020. Care does need to be taken if adopting this approach, for example it is important to make sure any document issued does meet all the requirements of a tax invoice.
Calculating VAT on an inclusive amount
To calculate the VAT element of a gross amount divide it by 21.
Flat Rate Scheme
The Flat Rates applicable to certain sectors will be reduced to reflect the temporary rate reduction. At the time of writing these are not currently available.
Eat Out to Help Payments
This scheme only applies where food is sold for immediate consumption on the premises. The calculation of VAT should be based on the full amount of the customers’ bills.
SHOULD THE VAT RATE REDUCTION BE PASSED ON TO CUSTOMERS
The changes are being brought in as a response to the coronavirus pandemic to support businesses severely affected by forced closures and social distancing measures. There is no requirement for any business to reduce the price they charge to reflect the cut in VAT rate.
Whether to reduce prices is a matter of individual choice for the business. The terms of any contract or agreement may however be relevant.