Rate cut to VAT to boost hospitality and tourism sectors
“To get the sector moving and to protect jobs”
This is how Mr Sunak has back the decision to cut the VAT rate, in light of the Covid-19 pandemic, for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions.
The gradual easing of lockdown, the Eat Out to Help Out scheme, and now the VAT cut: it’s clear that the hospitality and tourism industries are a real focus of the government’s efforts to support businesses affected by forced closures and social distancing.
The cut in the VAT rate, from 20% to 5%, have taken effect from Wednesday the 15th July and will last until 12th January 2021.
As always seems to be the case with VAT on food & drink in particular, these temporary VAT cuts are likely to throw up some surprising and anomalous results and we already have mixed feedback from our customers
Food and drink
From 15th July, for 6 months, supplies of food and non-alcoholic drinks sold for on-premises consumption will attract the reduced 5% VAT rate.
“Premises” are defined as restaurants, cafes and pubs and include areas with tables and chairs on the pavement or concourse adjacent to the premises, or other areas designated for the exclusive use of the establishment. It will also extend to shared ‘food courts’ in shopping centres.
Importantly, the VAT cut will not extend to alcoholic drinks. So, if your gin & tonic, bought in a restaurant or pub, will seemingly attract a 20% VAT rate on the gin and a 5% VAT rate on the tonic.
A 5% VAT rate is to be applied also to supplies of hot takeaway food and hot takeaway non-alcoholic drinks.
Will remain zero-rated for VAT purposes, cold takeaway food and drink (with exception of crisps, sweets, and beverages like bottled water and soft drinks, still subject to 20% VAT).
Supplies of hotel accommodation, holiday accommodation, pitches for caravans and tents (and supplies of facilities provided in connection to such pitches) will be subject to the reduced 5% rate of VAT for the same 6-month period.
Admissions to attractions
The reduced (5%) VAT rate will apply to admission fees to the following, when not eligible for the cultural VAT exemption:
|Exhibitions||Similar cultural events and facilities|
The temporary reduced rate will also apply to goods when supplied as part of (but which are “incidental to” the admission fee). For example, an “incidental” supply of food and drink in conjunction with admission to a brewery tour, or the supply of a brochure or book in conjunction with entry to an exhibition, would be eligible for the temporary 5% VAT rate.
Specific examples given in published HMRC guidance include planetariums, botanical gardens, studio tours and factory tours.
The reduced VAT rate will not apply to admission to sporting events.
If an attraction is already covered by the VAT “cultural” exemption then the supply will, of course, continue to be exempt for VAT purposes.
Supplies that ‘straddle’ the temporary reduced rate
A VAT-registered business may receive payment or issue an invoice before 15th July for a supply eligible for the new reduced VAT rate and that takes place on or after 15th July. In such cases the business may charge VAT at the new, reduced, VAT rate and issue a credit note
UK amongst the highest tourism & hospitality rates in EU
The UK has one of the highest VAT rates on the tourism and entertainments sectors. Most other European countries have previously taken advantage of EU rules which allow reduced VAT rates on these services.
|Country||Standard VAT rate||Current hospitality VAT rate||New Covid rate in 2020|
|France||20%||10% or 5.5%|
VAT cuts have different benefit for consumer spend
VAT cuts targeting tourism and hospitality are not new and show mixed outcomes.
A reduction in the French restaurant VAT rate in 2009 from 19.6% to 5.5% was mostly retained by the business owners. An Irish tourism VAT rate cut from 13.5% to 9% following the Euro currency crisis in 2011 was again largely retained by the providers.
Some studies on VAT rate changes have shown asymmetric movements on prices: cuts are retained by the vendor; rises are passed onto the consumer.
We have witnessed different behaviour from the operators so far: some passing the reduction on to their guests, some have matched with additional discounts, others have retained the reduction to sustain their finance
After what the industry has been through in the past 4 months, in all fairness, I fell that any approach is valuable if it means to sustain an industry that has been crippled by exogenous factors.
Stefano Laudadio – Co-founder, PizzaSi
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