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:

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:

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:

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.

VAT changes

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:

After receiving the credit note in this form, you must follow the procedure outlined in Paragraph 19.9 here.

Get in Touch

Just fill in your details here if you need help with VAT Scheme or wish to discuss some other matters.

Lanop Accountants and Tax Advisers for Small and Medium Businesses

We are your local Chartered Accountants and Tax Advisers based in Putney, Harley Street and Battersea. We are expert XERO Accounting advisors and trusted business advisors in Wandsworth Borough.

While we are based in South West London and Central London, our clientele is quite global, and our staff is currently working remotely to serve our clients through active Zoom accounts all over UK.

As always, you can reach out to us anytime to discuss any financial issues you may have in this coronavirus pandemic.

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