If you are a restaurant owner and offer a 50% reduction to your customers through the Eat Out to Help Out (EOTHO) Scheme, is the VAT you are due to pay to HMRC on the discounted or full amount?

HMRC have confirmed that VAT will still be due on the full value of the bill, before the EOTHO discount has been applied. This differs to discounts provided by the restaurant as part of their own promotional deals where the VAT is due on the discounted element only. 

The reason for the VAT treatment differing for the EOTHO Schme is that although the customer is receiving a discount; the restaurant will still receive full consideration for the supply (it being ‘topped up’ by the Treasury).

The VAT should be paid in full within the correct period in which the transaction takes place, i.e. when the service is provided, and not when the refund for the scheme is paid.

You will be allowed to make a manual adjustment to your records to reflect the VAT that is due if your point of sale system would not otherwise allow you to reflect the VAT due accurately.

Alongside the scheme you can continue to apply the temporary reduced rating for VAT on these catering supplies.

VAT example for meal for four people:

Food cost – £80
Non-alcoholic beverages – £20
Total bill – £100
Total paid by customer = £60
Total paid by scheme = £40 (50% of the total bill up to a maximum of £10 per head)

VAT due = 1/21 of £100 = 4.76p (1/21 is the VAT fraction to extract 5% VAT from a VAT inclusive price)

Remember that the temporary reduced rate doesn’t apply to sales of alcohol and neither does the EOTHO Scheme.

VAT example for meal for four people, including alcohol.

Food cost – £42
Alcoholic beverages – £8
Total bill – £50
Total paid by customer = £29 (50% + alcoholic beverages)
Total paid by scheme = £21 (50% of the bill excluding alcohol)

VAT due on food = 1/21 of £42 = £2.00

VAT due on alcohol = 1/6 of £8 = £1.33
Total VAT due = £3.33

Within their guidance on EOTHO HMRC have mentioned that they will accept estimated returns if you are unable to calculate the adjustment in the correct period, and then correct the VAT on your next return. Whilst we cannot envisage a scenario where this would be applicable, the provision for estimating is there should it be necessary.