The hospitality and leisure industries as we all know, have been severely affected by the Coronavirus pandemic. To help businesses in these sectors to get back on their feet, the Government has reduced the rate of VAT to 5% rather than the standard rate of 20%. This applies to certain supplies and has now been extended until 31st March 2021.
Food and drink supplied for consumption in the premises, for example by a restaurant or a bar, and hot takeaway food and beverages are normally liable for VAT at the standard rate of 20%. During the support period, the 5% rate will apply instead to:
- hot and cold food for consumption on the premises on which they are supplied;
- hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied;
- hot takeaway food for consumption off the premises on which it is supplied;
- hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied.
Hotel and holiday accommodation
For businesses supplying hotel and holiday accommodation, the 5% rate VAT applies during the support period to:
- supplies of sleeping accommodation in a hotel or similar establishment;
- certain supplies of holiday accommodation;
- charge fees for caravan pitches and associated facilities;
- charge fees for tent pitches and camping facilities.
- Meals provided to guests in long-term holiday accommodation (more than 28 days) will also benefit from the reduced rate, but the hire of motor caravans will not.
Admission to attractions
The reduced rate of 5% also applies during the support period in respect of admission to certain attractions which would normally be liable for VAT at the standard rate. However, if the admission fee is exempt from VAT, this will take precedence over the 5% charge and the admission charge will remain exempt.
The temporary reduction will apply to admissions to shows, theatre, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events where these are not included in the existing cultural exemption.
Impact on flat rate scheme
VAT registered businesses using the flat rate scheme should note that some of the flat rate percentages have been reduced to take account of the temporary reduction in the rate of VAT.
Firms can choose whether or not to pass on the reduction to consumers by lowering prices, although this is not mandatory.