The Mini Budget that took place in early July brought multiple developments, each with the intention to help businesses in a variety of ways. One of the key changes was to the hospitality and tourism sectors, which saw VAT drop from the standard 20% to just 5% on certain items.
Running from 15th July 2020 until 12th January 2021, the VAT drop applies to food, non-alcoholic drinks, accommodation and numerous cultural activities. The scheme is designed to help cafes, restaurants, takeaways, hotels, museums and many other organisations by encouraging the public to enjoy a day out after more than three months of lockdown.
What the VAT cut covers
All kinds of items are included in the VAT cut, providing that the individual business decides to apply it. These include:
- Food and non-alcoholic drinks to be consumed on the premises, such as in a bar, café, restaurant or pub
- Hot takeaway food and hot takeaway non-alcoholic drinks (e.g. tea and coffee to go)
- Overnight accommodation in hotels, B&Bs and holiday homes
- Pitch fees at caravan and camping sites
- Admission or tickets to venues and experiences, such as museums, theatres, cinemas, zoos, concerts, theme parks, exhibitions, circuses, and any other leisure facilities that are considered eligible
What it means for the customer
The benefit for the customer is very straightforward. If a business fully participates in the VAT cut, the customer will pay 15% less VAT on their bill. Whilst this will make the most noticeable difference on the cost of event tickets or large food orders, it will still have a positive impact on even the smallest purchases, such as coffee for two.
What it means for the business
Whilst the VAT cut is completely optional, there’s no reason for businesses in the hospitality and tourism sectors not to take advantage it. Providing that a business is VAT registered, offering the full cut of 15% is an excellent way of attracting more people to pay a visit, helping to make up for revenue that was lost during the lockdown.
However, it’s up to the business owner whether or not they want to pass the VAT cut on to customers. For instance, a recent survey of pubs showed that 85% of landlords are charging the full VAT rate and keeping the saving for themselves. Meanwhile, some are passing on partial savings to the customer, helping to reduce their bill whilst still turning a higher profit than usual.
What about businesses on the VAT Flat Rate Scheme?
If a business in the tourism/hospitality sectors is part of the VAT Flat Rate Scheme, it can still benefit from the VAT cut. Different types of businesses are affected to a unique extent:
- Restaurants, takeaways and other food establishments see the VAT Flat Rate decrease from 12.5% to 4.5%
- Hotels and other types of accommodation decrease from 10.5% to 0%
- Pubs decrease from 6.5% to 1%
What it means for other businesses
If a business purchases anything from the tourism or hospitality sectors that comes with a VAT cut, they will benefit from lower outgoings. In turn, this is advantageous to cash flow, especially for businesses that make regular purchases of food, drink and overnight accommodation.
For example, if you purchase food and non-alcoholic drinks for a client meeting or an event, buy tickets to a cultural attraction as a reward or incentive for staff, or book a hotel room for a business trip, you might be offered a lower bill thanks to the VAT cut.
However, some businesses (cafés, hotels, attractions etc) may choose not to pass on the VAT saving. In addition, according to the Institute of Chartered Accountants in England and Wales, accommodation providers are not obliged to offer discounts on bookings or refunds on deposits and remaining balances. The decision is entirely down to the individual business, so it’s worth researching the market before making a purchase or a booking.
Get in touch
The expert accountants here at XL KPO Services are highly skilled at managing all tasks related to VAT, including registration, planning, preparing returns and filing with HMRC. If you’re an accountancy firm in the UK and would like to find out more about outsourcing, get in touch at firstname.lastname@example.org today.