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Reduced rate of VAT on hospitality, holiday accommodation and attractions

Following on from the Summer Statement on Wednesday 8th July the Government has published guidance on the reduced rate of VAT that will apply to hospitality, holiday accommodation and attractions. 
 
The rate of VAT on qualifying supplies will be reduced from 20% to 5% effective 15 July 2020 and will apply until 12 January 2021.  
 
This is clearly a valuable benefit for businesses which are able to apply the concession – it will be up to the individual business to decide whether to pass the benefit on to their customer by way of reduced prices or whether to continue to charge the same price for good and services and retain a higher margin.
 
At the same time the new rules apply very shortly and apply in areas where VAT is already a complex area (notably in the case of takeaway food for example).  As a result it will be essential that accounting systems are in place to ensure the correct amount of VAT is charged on any given supply and records are retained to demonstrate which rate was charged and why.  For many cash sales the position will be relatively clear although there may well be mixed supplies of zero (0%) , standard (20%) and reduced (5%) rate goods.  However for other supplies which (for example) are paid for in advance understanding the timing of the supply for VAT purposes will be critical in determining whether the supply falls within the window in which the reduced rate applies.
 
The broad outline of the new rules is set out below – please contact me if you would like assistance in determining how the reduced rate will apply to your business.
 

Hospitality & holiday accommodation

What is covered by the new reduced rate?
 
The following supplies will benefit from the temporary 5% reduced rate of VAT:
• Hot and cold food for consumption on the premises on which they are supplied – i.e. in cafes, restaurants, hotels, pubs and bars etc
• 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 they are supplied
• Hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied
• Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities
 
What is not covered by the new reduced rate?
 
Supplies which are not covered by the new reduced VAT rate include:
 
• Any supplies of alcoholic drinks
• Retail supplies of cold takeaway food
• Retail supplies of groceries
• Supplies of food that require significant further preparation by the customer
 
The normal VAT rules for these products will continue to apply.  
 
It is also important to note that supplies of food in the course of catering “off premises” will continue to be standard rated and the reduced VAT rate will not apply.  While the guidance is not particularly clear on this, examples might be the provision of catering services for a birthday party or wedding at a venue provided by the customer rather than the catering supplier – e.g. a private home or hall hired by the customer.  
 
Some complexity is likely to arise where, for example, meeting facilities beyond the mere provision of a room and incidental catering (e.g. tea, coffee, biscuits) are provided or where (for example) a wedding package is provided to include a wedding ceremony, room hire and in-house catering.  In these cases there may be a mix of exempt, standard rated and reduced rate supplies.
 

Attractions

What is covered by the new reduced rate?
 
The 5% reduced rate will also apply to admissions to the following attractions that are not currently eligible for the cultural VAT exemption:
 
• Theatres
• Circuses
• Fairs
• Amusement parks
• Concerts
• Museums
• Zoos
• Cinemas
• Exhibitions
• Similar cultural events and facilities
 
Examples of other attractions which may fall under the “other” category may include a planetarium, botanical gardens, studio tours and factory tours.  If an admission fee is charged for a live online event (not pre-recorded) then this may also qualify for the reduced VAT rate where it does not already qualify for the cultural exemption.
 
Where admission to attractions is covered by the existing cultural exemption, the exemption will take precedence.
 
What is not covered by the new reduced rate?
 
The reduced rate applies only to admission fee to the attraction, although where goods are provided as part of the admission fee and are merely incidental to the admission these will also attract the reduced 5% rate.  This might include (for example) the provision of a guide book or brochure as part of the admission to an exhibition.  
 
The new reduced rate does not apply to sporting events.  
 
Full details of how the reduced rate of VAT will apply can be found at the following link (which itself contains links to the detailed guidance relevant to each affected sector):
 
 

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