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July 15th 2020

Temporary VAT reductions - explained

In his Summer Statement Rishi Sunak announced some temporary cuts to VAT which apply from 15 July 2020 until 12 January 2021. The cuts are designed to stimulate business in specific sectors that have been particularly hard hit by Covid 19. Scholes Chartered Accountants brings you the details here.

Detailed guidance has now been published, but in summary, for the duration of the temporary cut:

Food & drink

On-site consumption: all sales of food and drink will be subject to the 5% rate, apart from alcoholic drinks which remain chargeable at 20%.

Takeaway: the sale of hot food and hot drinks that are not alcoholic will be subject to the 5% rate.

Further details can be found in the following VAT Notices which have been updated: Notice 701/14 Food products; Notice 709/1 Catering, takeaway food.

Hotel accommodation

HMRC has also confirmed that hotel deposits received before the rate change that relate to stays taking place afterwards, can be charged at 5% (rather than 20%) at the option of the business.

Tourist attractions

The VAT rate for admission to certain types of tourist attraction is also reduced from 20% to 5% until 12 January 2021. Qualifying attractions may include shows, theatres, concerts, museums, exhibitions, and "similar cultural events and facilities". Sporting events are specifically excluded.

Admissions that are already VAT exempt under the cultural exemption in Sch 9 Group 13 are unaffected.

HMRC has published further details in this guidance note.

These rules apply across the UK since VAT has not been devolved to the different parts of the UK.

In practice it is likely that many businesses, perhaps a majority, will choose to keep their prices the same, rather than passing on the benefit of the cuts to consumers. I think this was probably the Governments intention.

If you have any questions about the issues discussed in this article, contact us for assistance.

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