Reduced VAT rate for hospitality
The government has provided a boost to the hospitality sector by reducing the amount of VAT they have to pay over to HMRC on most sales made between 15 July 2020 and 31 March 2021 inclusive.
The VAT rate has been cut from 20% to 5% on all food and non-alcoholic drinks provided for consumption on the premises, and on all hot take-away food.
You don’t have to reduce your prices to pass on the VAT rate reduction to your customers, but you do need to account for the correct amount of VAT to HMRC.
The temporary 5% rate also applies to all hotel and holiday accommodation where the invoice is issued (or payment made) between 15 July and 31 March 2021, or the service is actually delivered in that period. Advance bookings for 2021 can be subject to 5% VAT if the invoice is issued or payment made before 31 March 2021.
The admission fee to tourist attractions is also now subject to 5% VAT, but other charges, such as hire of equipment, must be charged at 20% VAT. Some attractions charge the customer one indivisible fee for admission and another item, such as a printed guide, in which case the whole price is subject to the 5% VAT rate.
Sporting events are excluded from the reduced rate, but live performances of cultural events may be exempt from VAT.
If you use the VAT flat rate scheme for small businesses, the flat rate you need to apply will have reduced where you operate in one of these sectors:
- catering services, including restaurants and takeaways
- hotel or accommodation