On 8th July 2020 the Chancellor, Rishi Sunak announced he was cutting the rate of VAT on hospitality and tourism from 20% to 5%. The new rate would be effective from 15th July 2020 to 12th January 2021. 
The rate cut applies to food, non-alcoholic drinks, accommodation and admission to attractions across the UK. 
The aim of the change is to boost the economy and encourage consumer spending in the hospitality sector; however, it will undoubtedly cause some ‘transitional headaches’ for businesses that have to change their VAT accounting. 
What is VAT? 
VAT is the tax you have to pay when you buy goods and services in the UK. The standard rate of VAT in the UK is 20% but there is a reduced rate of 5% which applies to things like children’s car seats and home energy. 
There are also items that you do not have to pay VAT on including supermarket food and children’s clothing. 
How will this affect businesses? 
The VAT cut will apply to eat-in or hot takeaway food and non-alcoholic drinks from restaurants, cafes and pubs, accommodation in hotels, B&Bs, campsites and caravan sites, and attractions like cinemas, theme parks and zoos. 
For those businesses making supplies that fall within the scope, you must start charging the reduced rate of 5% from 15 July 2020. Therefore all takings, supplies made and subsequent invoices issued on or after 15 July 2020 until 12 January 2021 must be charged at the 5%. 
Do you have to pass on the VAT reduction to your customers? 
It is a business decision whether to pass on the price reduction or not. If you do then your customers will benefit and potentially spend more with you. 
If you need to advice and support on the VAT changes and how to calculate them please call our team on 01937 584188 or contact usvia our website and we will be happy to help. 
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Tagged as: Covid, Finance, General
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