Scope of the temporary VAT rate for hospitality

VAT on hospitality has been reduced from 20% to 5% from 15 July to 12 January 2021.

The scope of the reduced rate is

• Food and non-alcoholic drinks for on-site consumption including restaurants, cafes and pubs.
• Hot takeaway food and hot takeaway non-alcoholic drinks.
• Sleeping accommodation in hotels, guest houses, holiday accommodation including Airbnb, campsites, pitches for caravans and tents.
• Admissions to
  • shows;
  • theatres;
  • circuses;
  • fairs;
  • amusement parks;
  • concerts;
  • museums (that are not already VAT exempt when provided by not for profit or public bodies);
  • zoos;
  • cinemas;
  • exhibitions;
  • botanical gardens;
  • other cultural events.

 

The VAT fraction for these supplies changes from 1/6 to 1/21. So for every £10 gross sale, VAT falls from £ 1.66 to £ 0.47.

Entrance to sporting events are not within the scope of the reduced rate.

There are special rules for supplies that straddle the change in the rate.  The most immediate issue is when a customer has made a payment (in full or part) in advance (before 15 July) of a supply taking place within the 6 months of the temporary reduction.  In these circumstances, the seller can choose whether to apply the 5% VAT to the payment already received.  If so, they should issue a credit note to the customer.

 

VAT Flat Rate Scheme (FRS)

The relevant flat rate percentages for categories covered by the reduced rate will be adjusted temporarily.  The following rates will change;

• Catering services including restaurants and takeaways down from 12.5% to 4.5%
• Hotels and accommodation down from 10.5% to zero

Pubs down from 6.5% to 1% although most pubs have an annual turnover above the FRS threshold of £150,000 (excluding VAT) so rarely use the scheme.

Wedding packages.  If you supply a package of wedding services (including, for example, use of rooms for a ceremony, wedding breakfast and evening party), this is a single standard-rated supply, regardless of whether the catering is supplied by you or someone else.  Between the 15 July 2020 and 12 January 2021, if the catering is provided in house as a separate supply, it may benefit from the temporary reduced rate subject to the rules on single and multiple supplies.

If you have any questions, please contact the VAT team.