Temporary VAT Rate Change in Hospitality and Tourism

Following the easing of the Covid-19 lockdown for businesses in the hospitality and tourism industries and in an attempt to stimulate a recovery in those businesses  the Chancellor has recently announced that VAT on certain supplies of foods and drink, accommodation, or admission to attractions would temporarily be reduced from 20% to 5%, applying to businesses in all 4 countries in the UK between 15 July 2020 to 12 January 2021.

HMRC’s most recent guidance on this temporary reduction in VAT was given in a document entitled “VAT: reduced rate for hospitality, holiday accommodation and attractions”, see link by clicking here.

From this document it appears that the Chancellor is expecting businesses to pass this VAT reduction on to their customer to encourage more footfall and custom. However, there is no legal requirement for businesses to reduce their prices and those that chose not to will instead enjoy the 15% VAT saving as additional profit.

It is also clear that the reduction in VAT applies only to supplies of foods and drink, accommodation, or admission to attractions and does not extend to supplies of goods and services to those businesses in the hospitality and tourism industries. Those supplies will remain subject to VAT at the usual rate.

Hospitality

Between the relevant dates the supply of

• food served for on premises consumption, such as that served in restaurants, cafés, pubs or similar establishments
• non-alcoholic drinks served for consumption on premises such as in restaurants, cafés, pubs, bars or similar establishments
• hot takeaway food and hot takeaway non-alcoholic

will all be subject to VAT at 5%.

HMRC have updated their guidance within VAT Notice 709/1 (see link below) to reflect these changes.

Click here to find out more.

In regard to the supply of food or non-alcoholic drink for on-premises consumption in restaurants, cafes, pubs etc, these supplies are considered to be made ‘in the course of catering ‘, as there is a significant amount of service involved in the supply.

Therefore, while a bar meal served in a pub will qualify for 5% VAT during the temporary reduction period, the sale of a packet of crisps or a bag of salted peanuts will not qualify as, although these will undoubtedly be eaten on the premises, they are not sold ‘in the course of catering’.

However, a simple supply of catering under a contract of catering will not qualify for the reduced rate of VAT.

Also, important for licenced premises, the reduction in VAT does not include the sale of alcoholic drinks, which remains at 20%.

VAT Notice 709/1 also provides guidance as to what is considered to be hot takeaway food and drink and it should be noted that the temporary reduction only applies to HOT takeaway food and HOT non-alcoholic drinks for takeaway.

Cold takeaway food remains subject to VAT at its ordinary rate and this may cause issue for some establishments. For example, an ice-cream parlour that serves ice-cream to both eat-in and takeaway customer will apply the 5% VAT to sales made to customers who are to eat-in but 20% to takeaway customers and, given public awareness of this change, this may cause ill-feeling if the business retains the same sales price for both eat in and take away ice-cream.

Tourism

Hotels and holiday accommodation

The temporary reduction in VAT will also apply to supplies of accommodation in:

• hotels, guest houses, B&Bs, hostels and other similar establishments
• caravans, chalets, furnished holiday lets etc

The reduction in VAT will also apply to pitch fees for touring caravan or tents and the facilities provided as part of that pitch fee.

However, the temporary reduction in VAT does not extend to ground rent, service charges or other such charges made to a caravan or chalet owners on a caravan or chalet park/site or to the purchase of a caravan, chalet or tent.

Again, HMRC have updated their guidance within VAT Notice 709/3 (see link here) to reflect these changes.

Entry to attractions

Admission to some attractions may already qualify for exemption from VAT under the existing ‘Cultural Exemption’ and this existing exemption takes precedence over the announced temporary reduction in VAT but, where the exemption doesn’t already apply, the reduced rate will apply to admission charges in regard to attractions such as:

• Theatres
• Circuses
• Fairs
• Amusement/theme parks
• Concerts
• Museums
• Zoos
• Cinemas
• Exhibitions
• Other cultural event or facilities

However, the reduction does not apply to admission to sporting events.

The reduced VAT rate also does not apply to any other goods or services supplied by or at the attraction, although, it does extend to goods that are both supplied as part of the admission fee and that are incidental to the main supply; such as a pair of 3D glasses used to view a 3D film in a cinema, where those glasses are included in the admission price.

HMRC has issued brief guidance regarding the reduced rating for admission to attractions on their website, see the link here.