VAT Update: Temporary reduced rate of VAT at 5% on hospitality supplies, hotel accommodation and admissions to attractions

VAT Update: Temporary reduced rate of VAT at 5% on hospitality supplies, hotel accommodation and admissions to attractions

28 July 2020

The Chancellor’s Summer Statement on 8 July announced new VAT measures to support the UK in its recovery from the Coronavirus pandemic by introducing a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation and admissions to certain attractions.

The VAT cut applies from 15 July 2020 to 12 January 2021 and affects the following supplies:

  • Hospitality catering supplies:
    • Food and non-alcoholic beverages sold for on-premises consumption (e.g. in restaurants, cafes and pubs);
    • Hot takeaway food and drink;
  • Holiday accommodation:
    • Sleeping accommodation in hotels, inns, boarding houses and similar;
    • Grant of a licence to occupy holiday accommodation;
    • Charges for seasonal pitches for caravans and pitches for tents, together with associated camping facilities when provided as part of a single supply;
  • Admissions to attractions:
    • Theatres, circuses, fairs, amusement parks;
    • Concerts, cinemas, exhibitions;
    • Museums, zoos and similar;

It is up to businesses whether they retain this VAT saving or pass some or all of it on to consumers.

HOSPITALITY CATERING SUPPLIES

The changes affect any supply of food or drink (excluding alcoholic beverages) for consumption on the premises from which they are served, as well as any supply of hot food or drink for consumption off those premises. Businesses are normally required to charge VAT at the standard rate of 20% on such supplies but from 15 July 2020 until 12 January 2021, this is reduced to 5%.

SUPPLIES NOT AFFECTED BY THE MEASURES

  • Cold takeaway food;
  • Alcoholic beverages remain standard-rated (on premises or takeaway);
  • Hot takeaway alcoholic drinks (e.g. mulled wine) remain standard-rated;

MULTIPLE SUPPLIES

If a single price is charged, e.g. for a meal and an alcoholic drink, the single price needs apportioning between the element which is subject to 20% VAT (the alcoholic drink) and the element subject to 5% VAT (the meal). The appropriate amount of VAT is then added to each element.

FLAT RATE SCHEME

HMRC have updated the flat rate percentage for pubs from 6.5% to 1% and for restaurants from 12.5% to 4.5% for the relevant period 15 July 2020 to 12 January 2021.

HOTELS AND HOLIDAY ACCOMMODATION

The changes affect supplies of sleeping accommodation in hotels, B&B’s, campsites and caravan sites which are normally subject to VAT at 20%. Between 15 July 2020 and 12 January 2021 such supplies benefit from the temporarily reduced rate of 5%.

ADVANCE BOOKINGS AND DEPOSITS

If a business has taken payment before 15 July 2020 in respect of stays taking place between 15 July 2020 and 12 January 2021, and has therefore charged VAT at 20%, it is permissible to issue a credit note and repay to the customer the difference between the VAT due at the normal rate and the reduced rate. Application of this is at the business’s discretion.

DEPOSITS TAKEN DURING THE QUALIFYING PERIOD

Where an advance payment or deposit is received between 15 July 2020 and 12 January 2021 the payment is subject to VAT at the 5% rate, even if the stay takes place after 12th January 2021.

LONG STAY GUESTS

Where a supply is made of sleeping accommodation for a guest staying for over 28 consecutive days, the supply is exempt from the 29th day. The temporarily reduced rate applies in respect of the first 28 days, but from the 29th day, the accommodation element is entirely relieved from VAT.

WEDDING PACKAGES

Wedding packages are subject to VAT at 20%. A wedding package is usually made up of the supply of the premises where the wedding or reception takes place, together with associated services such as catering, flowers and music. Where catering is an element of the package it is not eligible for the temporary reduced rate as it is supplied with other services.

A separate supply of catering for a wedding, by a caterer not providing any other services, is expected to benefit from the temporary reduced rate provided it is made on the premises where the reception takes place and the supply is made by the caterer directly to the customer. Catering which is sub-contracted does not benefit from the temporary reduced rate.

MEETING AND EVENT AREAS FOR OPTED PROPERTIES

The charge for rooms hired for meetings or conferences with catering (i.e. meal and buffet) needs to be split out between the room hire element and the catering, since the catering is subject to the temporary 5% rate. If the property is ‘opted to tax’ the room hire element remains subject to 20% VAT, otherwise it remains VAT exempt. Rooms hired for meetings or conferences with no or minimal refreshments within an opted property still attract VAT at 20% on the whole charge or are VAT exempt in the absence of an option.

FLAT RATE SCHEME

HMRC have updated the flat rate percentage for hotels and similar establishments from 10.5% to 0% for the relevant period 15 July 2020 to 12 January 2021.

ADMISSIONS TO ATTRACTIONS

The changes affect any supplies of admissions that are normally taxable at the standard rate including shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities.

The changes also apply to incidental supplies included with the admission fee, e.g. a brochure, tour guide.

SUPPLIES NOT AFFECTED BY THE MEASURES

  • Admission to sporting events;
  • Admissions that are normally exempt from VAT under the existing cultural exemption (e.g. admissions by a charity or public body);

LIVE PERFORMANCES ONLINE

If an admission fee is charged to view a live performance shown online, for example a live performance of a musical or a play, this may be eligible for the temporary reduced rate of VAT. This assumes the place of supply is in the UK; consideration should be given to the place of supply for digital services, as UK VAT may not be chargeable in the first instance.

EAT OUT TO HELP OUT SCHEME

The “Eat Out to Help Out” scheme has been introduced by the government to incentivise customers to eat out in restaurants by giving them a discount of up to £10 per person which the restaurant can then claim back from the government.

At participating establishments the scheme provides a discount of 50% on food and non-alcoholic drinks, subject to a cap of £10 per person if the customers eat or drink in. It can be used every Monday, Tuesday and Wednesday between 3 and 31 August and can be used multiple times and in conjunction with other offers and discounts.

SUPPLIES EXCLUDED:

  • Alcoholic drinks;
  • Service charges;
  • Takeaway food and drink;

VAT CONSIDERATIONS

VAT must continue to be charged on the full amount of the pre-discount customer’s bill, not on the discounted amount payable by the customer.

The information contained in this document is for information only. It is not a substitute for taking professional advice. In no event will Dixon Wilson accept liability to any person for any decision made or action taken in reliance on information contained in this document or from any linked website.

This firm is not authorised under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a limited range of investment services to clients because we are members of the Institute of Chartered Accountants in England and Wales. We can provide these investment services if they are an incidental part of the professional services we have been engaged to provide.

The services described in this document may include investment services of this kind.

Dixon Wilson
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COVID-19 - Tax and Financial Reliefs

The disruption to business as a result of measures put in place to limit the spread of COVID-19 is unprecedented. The UK Government has announced a number of measures designed to cushion the financial impact to businesses, and although no details have been announced, what we know about these measures is summarised in this update.

The government will refund eligible COVID-19 related SSP costs to small and medium-sized businesses. This covers employees who are required to isolate/quarantine but are unable to work from home. Employers must keep records of those who are sick, or isolating, but employees do not have to provide a sick note. Isolation notes are being issued by NHS 111 online and these will suffice.

Eligible businesses are those who have 250 or fewer employees as at 28 February 2020. Once necessary legislation has passed, these measures can be applied retrospectively from 13 March 2020 and will cover up to two weeks of SSP per employee.

Where employees are furloughed instead of being made redundant, HMRC will refund the employer 80% of the workers wage costs, up to a cap of £2,500 per employee per month, plus the associated employer NICs and minimum auto-enrolment employer pension contributions. The government is creating a new online portal for employers to notify HMRC of furloughed employees and HMRC are working urgently to set up a system for reimbursement. Employees’ wages will still fall under usual PAYE and employee NIC rules.

The scheme is intended to be applied retrospectively from 1 March 2020 to run for a minimum of three months.

The 80% grant is to be based on the wage costs of the prior pay period, for example if a worker is placed on furlough at 1 March, their February salary will guide the 80% grant receivable from the government. However if employees’ wages vary throughout the year, the claim can be based on the higher of the same month’s earnings from the previous year or the monthly average of their earnings for the tax year 2019/20.

The scheme applies to any employee paid under PAYE and who was employed on 28 February 2020.

Where an employer pays National Living Wage (NLW) or National Minimum Wage (NMW), the CJRS claim is still based on 80% of the employees’ salary. This may take an employee’s pay below NLW/NMW based on their usual working hours (assuming the employer is only paying 80% of wages), however because furloughed workers will not be working, there is no breach of the NMW rules.

LEGAL CONSIDERATIONS

The Government guidance states “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”.

Whilst employers can choose to fund the difference in monthly pay to their employees they are not required to do so. Reducing an employees monthly wage whilst on furlough amounts to a temporary change in contract and must be consented to in writing by the employee, otherwise the employer risks making unlawful deductions from wages.

Employees paid their usual full salary will not necessarily have to give their consent to being furloughed, however this is unlikely to happen in practice, given the nature of being furloughed.

Employers should use a process of fair selection in deciding which employees are furloughed to avoid claims being made against them.

For further details on the CJRS relief, please see our separate update.

This scheme will allow you to claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 per month for April, May and June. This may be extended if needed.

This is available for people who:

  • have submitted their self assessment tax return for the tax year 2018-19 (if not already filed then this must be submitted by 23 April 2020)
  • traded in the tax year 2019-20
  • are trading when they apply, or would be except for COVID-19
  • intend to continue to trade in the tax year 2020-21
  • have lost trading/partnership trading profits due to COVID-19

More specifically, a trader will be eligible if at least one of the following conditions is true:

  • Trading profits/partnership trading profits in 2018-19 were less than £50,000 and these profits constituted more than half of their total taxable income; or
  • Average trading profits in 2016-17, 2017-18, and 2018-19 were less than £50,000 and these profits constitute more than half of their average taxable income in the same period

If the individual began trading after 2016, then HMRC will only use those years for which the trade was included on their tax returns.

Individuals who began trading since 6 April 2019 will not be eligible for this grant.

AMOUNT OF GRANT

The grant will be 80% of the individual’s average monthly profits, up to a maximum of £2,500 per month.

HMRC will calculate the mean average of the yearly trading profits on the three tax returns from 2016/17 to 2018/19 (excluding any in which the person did not trade). It is assumed that this yearly figure will be divided by 12 to find the monthly amount.

THE PROCESS

At the time of writing (31 March) individuals cannot apply to join this scheme. HMRC will be contacting eligible people and instructing them on how to apply. The government suggests that first contact will be made by the beginning of June and they do not advise that anyone contact them independently.

HMRC are expected to use letters only in contacting individuals about this and they would not normally use email, text, phonecalls or any other mode of communication. This system is likely to be abused by scams. People should be very careful when giving out any details, and this grant scheme will only be administered through websites on the gov.uk domain.

The grant will be paid directly into the individual’s bank account, in one instalment. This may be repeated if the scheme were to be extended, dependent on how long the effects of Covid-19 persist.

The grant will be taxable on the person and will need to be included on the self assessment tax return. Unless this is enacted before April 5 2020, it should only affect the 2020/21 tax return which will not be due for filing until January 2022.

SMALL BUSINESS GRANT SCHEME FUNDING - BUSINESSES PAYING LITTLE OR NO BUSINESS RATES

To support businesses that pay little or no business rates due to Small Business Rate Relief (SBRR), Rural Rate Relief (RRR), or tapered relief, the government will provide funding for local authorities in England. This measure will provide a one-off grant of £10,000 to around 700,000 businesses currently eligible for SBRR or RRR as of 11 March, to help meet their ongoing business costs.

BUSINESS RATES HOLIDAY

To support small businesses affected by COVID-19, the government is raising the Business Rates Retail Discount to 100% for the 2020 to 2021 tax year. This business rates holiday will apply to all businesses in England in the retail, hospitality and leisure sectors, irrespective of their rateable values.

Businesses that received the retail discount in the 2019 to 2020 tax year will be rebilled by their local authority as soon as possible.

CASH GRANTS FOR SMALL BUSINESSES

Through the Retail and Hospitality Grant Scheme, businesses in England in the retail, hospitality and leisure sectors will also be provided an additional cash grant of up to £25,000 per property.

Businesses in these sectors with property that has:

  • a rateable value of £15,000 and under, may be eligible for a grant of £10,000; or
  • a rateable value of between £15,001 and £51,000, may be eligible for a grant of £25,000.

Occupied properties used by businesses in the retail, hospitality and leisure sectors will benefit from these reliefs if they meet the above eligibility criteria and if they are wholly or predominantly being used:

  • as shops, restaurants, cafes, drinking establishments, cinemas or live music venues;
  • for assembly or leisure; or
  • as hotels, guest and boarding premises or self-catering accommodation.

All VAT payments falling due between 20 March 2020 and 30 June 2020 will be deferred during the coronavirus pandemic. This includes foreign businesses which are registered for UK VAT. The scheme is automatic with no applications required.

The scheme does not apply to VAT payments under the Mini-One-Stop-Shop scheme.

The VAT not paid during the period is then due to be paid to HMRC by the end of the 2020/21 financial year, which ends on 31 March 2021.

No interest or penalties will be charged on any amount deferred as a result of this scheme.

VAT payers on Direct Debits, must cancel their direct debit via their Gateway login account or contact their bank. The mandate must be cancelled in sufficient time so that HMRC do not attempt to automatically collect, following submission of the VAT return. HMRC does not have the power to stop a mandate, nor can agents cancel direct debit mandates on behalf of taxpayers.

VAT refunds and reclaims will continue to be paid by the government as normal.

VAT returns must still be filed on time, including following the new 2020 MTD rules.

Payments on account of income tax that would normally fall due in July 2020 may be deferred to January 2021. This will be automatic, no payments or applications are required at this time. At the point of filing 2019/20 returns, no interest or penalties will be charged for payments that have been made after the normal July deadline.

The government has confirmed that all people are eligible for this, and not just those that are self-employed.

CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME OFFERING LOANS OF UP TO £5 MILLION FOR SMES THROUGH THE BRITISH BUSINESS BANK

This scheme will support SMEs, providing them with access to loans, overdrafts, invoice finance and asset finance up to £5m for up to six years. The government will also cover the first 12 months of interest.

Broadly businesses are eligible if they are UK based and have a turnover of less than £45m.

The government will provide lenders with a guarantee of 80% on each loan made under the Business Interruption Loan Scheme, subject to certain pre-lender caps. There are currently 40 accredited lenders under the scheme. Businesses need to contact their bank to establish eligibility.

TERM FUND SCHEME (TFSME)

A new four-year TFSME is to run for a year and is designed to encourage banks and building societies to offer lending close to the new level of the bank rate and with additional incentives to lend to Small and Medium-Sized Enterprises (SMEs).

COVID-19 CORPORATE FINANCE FACILITY

A new lending facility, the COVID-19 corporate finance facility will help bridge disruption to cash flow and support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows.

Under this facility the Bank of England will buy short term debt from larger companies, and support corporate finance markets to ease supply of credit to all firms.