Temporary reduction in the VAT rate

Temporary reduction in the VAT rate for hospitality businesses

The Chancellor has today announced further measures to assist with job retention and to help stimulate business and the economy as business begin to open up after the Covid-19 lockdown.

To help businesses in the tourism and hospitality industries VAT will be temporarily reduced from 20% to 5% on certain supplies made within these in industries.

The temporary reductions of VAT apply to all four countries in the UK and will be in operation for just about 6 months, beginning 15 July 2020 and ending 12 January 2021. 

Hospitality Sector

In the hospitality sector the temporary reduction in VAT will apply to the sale of food, including eat-in and hot take-away food, and non-alcoholic drinks served in or sold from restaurants, pubs, bars, cafes, and other similar establishments. Cold take-away food will continue to be to be zero-rated as usual.

However, alcoholic drinks are not included in the temporary reduction of VAT and will remain subject to VAT at 20%.

In the tourism sector the temporary reduction in VAT will apply to supplies of accommodation in hotels, B&Bs, campsites and caravan sites as well as to entry to attractions such as cinemas, zoos and theme parks.

While this will be welcomed by the industry, the introduction of 5% on some sales made by businesses whose sales are usually all standard-rated, such as a pub, this will undoubtedly create additional record keeping requirements as those business will need to introduce method to identify the breakdown of their sales between standard-rate and the temporary 5%.