5% VAT rate for hospitality sector - what you need to know

The Government announced last week that the 5% rate of VAT will apply to supplies made in the hospitality, accommodation, and attractions sector between 15 July 2020 and 12 January 2021.

The reduced VAT rate shall apply to the following supplies which would otherwise have been taxed at the standard VAT rate:

• Food and non-alcoholic beverages sold for on-premises consumption, for example in a café or restaurant.
• Hot takeaway food and hot takeaway non-alcoholic beverages.
• Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.
• Admission charges to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities such as planetariums, botanical gardens, studio tours and factory tours.
• Online live performances (not pre-recorded events) unless already covered by the Cultural VAT exemption.

The reduced rate shall apply only to admission fees; however, any goods which are supplied as part of the admission fee and are “incidental” shall be taxed at the reduced rate as well. It is the taxpayers’ responsibility to prove that goods are “incidental”.

For example, alcoholic beverages included as part of the admission fee for a tour of a brewery or distillery will qualify for the temporary VAT cut. However, alcoholic beverages sold separately, or as part of a meal, will be subject to the standard rate of VAT.

Read HMRC’s guidance for more information

Supplies which are not eligible for the temporary VAT cut include:

• Admission charges to sporting events and use of sporting facilities.
• Alcoholic beverages, except when supplied as an incidental part of a tour of a brewery or distillery (see above).
• Food and drink sold otherwise than in the course of catering. Some non-alcoholic beverages, for example, will be subject to the standard rate of VAT when sold in a supermarket and the 5% rate of VAT when sold in a café or restaurant.
• Supplies that currently qualify for the zero rate of VAT or exemption from VAT.

Businesses are under no obligation to pass on the benefit of the VAT reduction to customers. For many businesses, the reduced rate of VAT may only partly compensate them for the loss of revenue and additional costs arising from the coronavirus pandemic.

Please contact one of our team if you would like our help to understand the changes and how they will affect your business, or email us at info@forrester-boyd.co.uk