The Temporary Reduced Rate of VAT for Leisure and Hospitality
New measures including the reduced rate of VAT were recently announced by the Chancellor but there is some confusion as to how they works and what items are actually covered. We therefore have put together a summary of the main points which hopefully you will find useful. As always please give us a call if you have any queries. One of the biggest problems that we envisage will be the ability of computerised accountancy software to deal with the temporary change in the VAT rate.
Restaurants, pubs, bars, cafes and hot takeaway food outlets
The 5 per cent reduced rate of VAT will apply to food and non-alcoholic drinks sold for on premises consumption in restaurants, pubs, bars, and cafés. It will also apply to hot takeaway food and hot takeaway non-alcoholic beverages for consumption off the premises.
However, there are some areas which are likely to cause confusion for the hot food sector.
- It appears that cold drinks, such as canned soft drinks, sold for takeaway will not be covered by the reduced rate. Takeaway businesses will need to identify sales of these items separately.
- The guidance states that catering contracts, which appears to refer to buffets or meals for meetings and private events held off premises, will not be eligible for the reduced rate and remain subject to VAT at 20 per cent.
- HMRC has reduced the percentages used in the Flat Rate Scheme in line with the temporarily reduced rate. The existing rates for the following categories have been updated as follows:
- Catering services, including restaurants and takeaways = revised to 4.5% (from 12.5%)
- Hotel or accommodation = revised to 0% (from 10.5%)
- Pubs = revised to 1% (was 6.5%)
- HMRC has not so far created any new categories, e.g. to differentiate between outlets that serve only food and non-alcoholic drinks (eligible for the reduced rate) and those that also serve alcohol, which is still subject to VAT at 20 per cent.
The ‘Eat Out to Help Out’ scheme
The ‘Eat Out to Help Out’ discount scheme has been introduced by the government to encourage people to return to eating out in restaurants, cafés, pubs, and similar food service establishments. Restaurants and cafes within hotels, tourist attractions and holiday parks are also included, as are workplace and school canteens and dining rooms at members clubs. However, the scheme does not apply to takeaway food or catering for private parties, events or functions.
Diners will be entitled to a 50 per cent discount of up to £10 per head on any eat-in meal (including on non-alcoholic drinks) purchased at a participating venue on a Monday, Tuesday or Wednesday during August 2020. Service charges and alcoholic drinks are not included in the amount eligible for the discount.
Businesses will be reimbursed by the government through an online scheme, which opens for registration on 13 July. More information is available on the gov.uk website. HMRC will open its online portal for reimbursement claims on 7 August, and says it will pay eligible claims within 5 working days. Businesses can submit claims on a weekly basis.
HMRC says that the maximum discount value of £10 per diner is inclusive of VAT and that businesses must still pay VAT based on the full amount of the customer’s bills. Its guidance includes examples of bills which indicate that the supplier will be required to account for VAT (at potentially different VAT rates) on the full, pre-discount value of the customer’s bill, and not on the discounted amount that they will receive in payment from the customer.
Pubs and restaurants will need to carefully consider how to reconfigure their till systems to ensure that they account for VAT correctly. The VAT position is likely to be even more complex for those who offer multibuy deals including meals and alcohol, and larger pubs who must perform partial exemption calculations as a result of VAT exempt income from gaming machines.
Admissions to attractions
The temporary reduced rate will apply to admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities. HMRC’s latest guidance adds botanical gardens, planetariums and studio and factory tours as examples of attractions to which the reduced VAT rate for admission fees may apply.
However, the reduced rate does not apply to admissions to sporting events. Also, not for profit organisations and public bodies running attractions and events that qualify for the ‘cultural services’ VAT exemption must apply the exemption, rather than the reduced rate.
Where an admission fee includes other items, such as samples of drinks as part of a tour of a brewery or distillery, or a brochure included in the admission fee for an exhibition, HMRC says the whole supply is eligible for the reduced rate provided the additional items are incidental to the admission.
Organisations that charge admission fees to view an online live performance may also be eligible for the reduced rate and reminds promoters that fees charged to non-EU customers may be outside the scope of VAT altogether.
Venues and attractions that include cafes or restaurants may also sign up for the government’s Eat In To Help Out discount scheme.