The government has announced certain changes to VAT for a period of six months that will take effect from 15th July 2020 onwards.
Which industries will benefit from these changes?
The following industries will benefit from these changes:
- Hotel and Holiday Accommodation
- Admissions to certain Attractions
What dates does the temporary reduced rate apply to?
The temporary reduced rate applies to supplies that are made between 15 July 2020 and 12 January 2021.
How do these changes affect the Hospitality sector?
Hospitality includes sectors supplying food and non-alcoholic beverages for consumption on their “premises”. For instance, a restaurant, café, or a pub.
Hospitality sector will be able to charge a reduced rate of VAT at 5% from 15th July 2020 onwards.
Previously, they were required to charge VAT at the standard rate of 20%.
It is thought that the temporary reduced rate of 5% will have a positive impact on the hospitality and tourism sector.
However, it is important to note that the temporary reduced rate does not apply to alcoholic drinks. As a result, it will not significantly benefit pubs that sell little or no food.
It is not yet clear how much the VAT reduction will be passed on to consumers as it harder, specifically for situations, where, for instance, menus have been already printed.
You can find out more on how these changes affect your business by visiting this page.
How do these changes affect the Hotel and Holiday Accommodation sector?
VAT flat rate percentage for Hotel and Holiday accommodation sector has been reduced from 10% to 0% from 15th July 2020 to 12 January 2021.
Businesses in Hotel and holiday accommodation providing the following services will be able to benefit from temporary reduction in VAT:
- Supplying sleeping accommodation in a hotel or similar establishment
- Charging fees for tent pitches or camping facilities
- Charging fees for caravan pitches and associated facilities
- Making certain supplies of holiday accommodation
More information on how these changes affect your business can be found here.
Are the reduced rates applicable for Admission to certain Attractions as well?
Yes. The reduced rate of VAT at 5% is also applicable to certain attractions that currently charge an admission fee at a standard VAT rate of 20% between 15th July 2020 and 12 January 2021.
These include amusement parks, theatres, concerts, museums, cinemas, zoos, fairs, circuses, exhibitions and similar cultural events and facilities.
In case, the admission to these attractions is covered by the existing cultural exemption, the cultural exemption will override the reduced VAT rates for these attractions.
Has there been any change in the VAT Flat Rate Scheme?
Yes. Certain percentages in line with the introduction of temporary reduced rate of VAT have been used for the flat rate scheme too.
This is specifically for small businesses that use the flat rate scheme to simply their VAT calculations.
You can learn more about VAT Flat Rate Scheme here.
Flat rates have been reduced for:
- Catering services including restaurants and takeaway rates have been slashed from 12.5% to 4.5%
- Hotel and accommodation from 10.5% to 0%.
- Pubs from 6.5% to 1%
This applies to flat rates charged from 15th July 2020 to 12th January 2021.
How should you account for supplies that straddle the temporary reduced rate?
While you simply need to account for VAT at 5% for supplies made between 15th July 2020 and 12 January 2021; however, there may be situations where you receive payments or issue invoices before 15th July 2020 for supplies that take place on or after 15th July 2020.
Further information regarding this can be accessed here.
How can you use special provisions when the tax rate or liability goes down?
You can charge tax at the new rate on goods removed or services performed after the date of change when the amount of VAT charged on the supply decreases – even though payment has been received and/or a VAT invoice is issued before that date.
For instance, consider this timeline:
1st April – VAT invoice issued, or payment received
5th April – Tax rate goes down
10th April – Goods removed
Under normal rules, the VAT invoice issue date or receipt of payment will be the actual tax point to the extent of the amount invoiced or paid. As a result, tax would be due at the old rate on the amount invoiced or paid.
However, if you have already issued a VAT invoice showing the old tax rate, you may need to correct it by issuing a credit note within 45 days.
What details should your credit note contain?
The credit note should contain:
- Your name, address, and registration number
- The identification number and date of issue of the credit note
- Your customer’s name and address
- The identification number and issue date of the VAT invoice
- A description identifying the goods or services supplied
- The amount of VAT being credited
After receiving the credit note in this form, you must follow the procedure outlined in Paragraph 19.9 here.
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