Coronavirus VAT cut: what’s included?
In last week’s Summer Statement, Chancellor Rishi Sunak announced a temporary coronavirus VAT cut. From today (15 July), VAT on a range of goods and services in the hospitality and leisure industries drops from 20% to 5%. This tax discount is designed to help these hard-hit sectors back on their feet and will last until 12 January 2021.
While good news for business owners, there’s no obligation for them to pass on the savings to customers. As the Guardian reports today, some organisations plan to pocket the difference, others will pass on the savings to corporate customers, while others are still considering how to respond. However, some firms such as Starbucks and Mexican chain Wahaca, do plan to pass on the savings to consumers.
Either way, whether you’re involved in the hospitality and leisure sector or you’re simply a savvy customer, it’s worth knowing what’s covered by the coronavirus VAT cut – and what isn’t.
A quick guide to the coronavirus VAT cut
The government guidance on the temporary reduced rate of VAT for hospitality, holiday accommodation and attractions is pretty clear.
All of the following things will benefit from the new 5% rate for the next six months:
- Food and non-alcoholic drinks sold for on-premises consumption
- Hot takeaway food and hot non-alcoholic drinks
- Sleeping accommodation (e.g. in hotels, B&Bs or holiday accommodation, or pitch fees for tents and caravans at campsites)
In addition, the new rate will apply to admission fees for the following attractions (if they are not already eligible for the existing cultural VAT exemption):
- Amusement parks
- Similar cultural events and facilities
Is your VAT accounting up to date?
If your business operates in one of the affected sectors, you need to make sure that your VAT accounting takes account of the new rate.
Importantly, if your business currently pays VAT using the Flat Rate Scheme (FRS), you may want to adopt normal VAT accounting to benefit from the 15% tax cut. There are pros and cons to doing this, particularly as the reduced VAT rate only lasts for six months. If you opt out of the Flat Rate Scheme, you can’t rejoin it for at least 12 months. However, switching could be a smart option for some businesses.
In short, if you are affected by the VAT cut, it’s a good idea to get advice as soon as you can. Get in touch with one of our accountants today – we’ll be happy to advise you of any ways you can make further savings.
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.