Following the UK Chancellor’s announcement that he is to reduce the UK VAT rate for the tourism and hospitality sector as from 15 July 2020 to 12 January 2021, HMRC have now issued some more detailed guidance on how this is to be applied.
The temporary 5% reduced rate of VAT is to apply to certain supplies relating to:
- Hotel and holiday accommodation; and
- Admission to certain attractions.
This will apply to anyone supplying food and non-alcoholic drinks for consumption on the premises, which will include for example, café’s, pubs and restaurants.
This will also include supplies of hot take away food and hot takeaway non-alcoholic drinks.
Hotel and holiday accommodation
The reduced VAT rate will apply if you make the following supplies:
- sleeping accommodation in a hotel or similar establishment;
- certain holiday accommodation;
- caravan pitches and associated facilities; and
- tent pitches or camping facilities.
Admission to certain attractions
If you supply admission to certain attractions that currently fall under the standard-rate of VAT, then you will be able to apply the 5% reduced rate of VAT from the dates above. This will not apply if the admission is currently exempt as that will take precedence over the temporary reduced rate of VAT.
It should be noted that the reduced rate does not apply to admission to sporting events.
Tour Operators Margin Scheme (TOMS)
For tour operators, the temporary reduced rate for supplies of hotel accommodation, catering and certain attractions will have an effect on their Tour Operators Margin Scheme (TOMS) calculation.
Whilst this won’t be applied to the margin calculated as this will continue to be standard rated or zero-rated for VAT purposes, in-house or bought-in supplies will now have the reduced rate applied. This will mean a higher profit margin which in turns means more VAT payable to HMRC.
It should be noted that the changes are complex so if you are affected by any of the changes above, please contact one of our VAT experts to discuss how we can assist.