By Michele Harris, VAT Director at Bracey’s • 3 min read •
From 15th July this year, the government is introducing a temporary VAT 5% hospitality rate. It’s hoped that this will give people another reason to get out and spend money, giving hospitality businesses a much-needed boost.
Here’s what you need to know about the new VAT changes.
Which businesses can benefit from the new rate?
The government has listed the products and places of businesses now able to charge just 5% VAT. In summary, they include tourist attractions, hotels, boarding houses, pubs, and anywhere that’s used for eating, accommodation, or takeaway food.
There are exclusions though. Alcohol is one notable example. So, if a customer has a pub meal that includes food, soft drinks, and alcoholic drinks, they’ll pay 5% on everything except the alcohol purchased.
How long will the 5% rate be in place for?
This is a temporary measure lasting between 15th July 2020 and 12th January 2021. It’s incumbent on the businesses to charge the correct amount of VAT on products or supplies listed. This means your accounting systems need to be up to scratch.
If you’re a business selling mixed supplies, there will be grey areas. That also puts the onus on taxpayers to check out VAT rates for goods sold. As the public is aware of these changes, there may be instances of people quibbling over the VAT charged.
What businesses should look out for
If you are working on antiquated systems, staff will have to manually key in the right amount of VAT per item. Then there are the situations where someone has already paid for something before the changes. Say, for instance, accommodation booked in advance. You may have taken payment before these changes, but the accommodation dates fall within the reduced rate timescale. What VAT do you charge in this scenario?
Another example is where someone’s paid an instalment for something. Say for campsite accommodation. They paid the first instalment on 1st April with 20% VAT. On 1st of August, the balance is due. Will you charge 20% on that payment or 5%?
Help is out there!
Thankfully, HMRC has issued guidance, but it doesn’t answer every question. If you’re stuck, ask your accountant for clarification. For example, as tax experts, the team here can help you understand the way liability is running.
If we go back to the pub example, a place that sells mixed supplies, we can essentially help you separate what you’ve sold at 5% and 20%.
The big positive!
This is a positive move for the hospitality sector. There have been calls to reduce the VAT rate for years, and although this is a temporary measure, it could make a big difference as businesses get back on their feet.
People are staying away from travelling abroad, and this could tempt more customers into your business and kickstart some degree of normality. The general population want to get out again, and this could be the perfect way to encourage them to do that.