5% hospitality VAT rules may be wider than you think

The issue

A few weeks ago the government announced a temporary cut in the VAT rate from 20% to 5% for certain supplies of hospitality, hotel, holiday accommodation and admission to certain attractions. The changes took effect from 15 July 2020 and should last until 12 January 2021.

The following supplies now benefit from the temporary 5% reduced rate of VAT:

  • Supplies of food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs.

  • Supplies of hot takeaway food and hot takeaway non-alcoholic beverages.

  • Supplies of sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.

  • Admissions to theatres, circuses, fairs, amusement parks, concerts, museums and exhibitions.

These are the headline rules but there may well be some businesses which do not appreciate that they fall within this favourable net and so it is well worth considering the detail.

Detailed rules

The detailed rules from HMRC can be seen on the following link (and following the links therein):

www.gov.uk/government/publications/revenue-and-customs-brief-10-2020-temporary-reduced-rate-of-vat-for-hospitality-holiday-accommodation-and-attractions/guidance-on-the-temporary-reduced-rate-of-vat-for-hospitality-holiday-accommodation-and-attractions

I was surprised to see the generous breadth of ‘holiday accommodation’ here and anecdotally I know of at least one case where a client wrongly concluded that they didn’t qualify for the reduced rate. For example:

  1. The rental of a boat will benefit from the reduced rate if it has accommodation and is held out as suitable for holiday accommodation.

  2. Serviced flats held out as holiday accommodation will usually qualify.

  3. The hotel definition is wide and there is no requirement to provide food and other services.

  4. The simple supply of pitches for tents should qualify for the reduced rates.

Forbes Dawson view

This is one more example where Covid-19 rules seem quite broad and generous. It is well worth scrutinising whether a particular business qualifies and whether there is scope to make it do so if it doesn’t quite fit the definitions. It also strikes me that there will be scope for some interesting Summer 2021 deals as the 5% rate period draws to an end (on 12 January 2021) if the VAT point can be triggered before that date. Perhaps this will be the subject of a future Tax Bite………..

 

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