During the lockdown, those in the hospitality sector took a huge hit down to lack of trade. To help businesses to recover without having to pass on the responsibility to customers, a special 5% VAT rate has been introduced from 15th July 2020 to 12th January 2021.
How Does The VAT Rate Cut Work?
The products which qualify for the VAT reduction slightly differ based on the industry that you operate in. This is because businesses must account for the correct VAT rate on sales made in those six months and not all sales that qualify for 5% VAT.
For instance, alcoholic drinks will stay at a 20% VAT rate, and cold foods such as sandwiches will not qualify, whereas hot takeaway food will be eligible for the 5% VAT rate. All food and non-alcoholic drinks provided for consumption on the premises will also qualify for the 5% rate.
Those who own a hotel or holiday accommodation will be subject to a 5% VAT if the invoice is issued between 15th July and 12th January 2021 or if their service was delivered during this period. Any advance bookings for 2021 can be eligible for the 5% VAT rate providing that their invoice is issued before 13th January 2021.
One issue that has been highlighted regarding the rate cut applies to tourist attractions, cultural events and facilities. This is because while the admission will be subject to a 5% cut, the 20% VAT will still apply to other charges such as hiring equipment. Some attractions opt for charging one joint fee for admission and a guide, for example. In this instance, the total price will qualify for the 5% VAT rate. Unfortunately, sporting events will be excluded from the reduced rate, and this may also be the case for live performances of cultural events.
For those who own a small business that uses the VAT flat rate scheme, it will be important to check that the rate has been changed for the low VAT period. This will apply to the following sectors:
- Catering, i.e. restaurants and takeaways
- Hotels or accommodation