On the 8 July, the ‘Mini Budget’ saw measures announced which intended to support businesses affected by temporary closures and social distancing measures required by the COVID-19 pandemic. These were announced to financially assist the hospitality and tourism sectors and to encourage the public to spend money and gain confidence in the re-opened establishments.

The Government has:

• Extended the services where a 5% reduced rate of VAT can be applied
• Introduced the Eat Out to Help Out scheme.

VAT reduction

Which supplies can be at the reduced-rated?

Some supplies of hospitality, accommodation and admission to attractions will be subject to VAT at 5% from 15 July 2020 to 12 January 2021. The supplies are defined by HMRC as follows:

Hospitality

• Supplies of food and non-alcoholic drinks for consumption on the same premises on which they were supplied. Generally speaking, this would mean a meal eaten in a restaurant or a cup of tea in a café. A ‘premises’ is defined by HMRC as ‘the areas occupied by the food retailer or, any area set aside for the consumption of food by the food retailers’ customers, whether or not the area may also be used by the customers of other food retailers’
• Hot takeaway food (cold takeaway food is already zero-rated, but note that sales of confectionery remain standard-rated)
• Hot takeaway drinks (cold takeaway soft drinks remain standard-rated).

Accommodation

• The provision of sleeping accommodation in hotels, inns, boarding houses and similar establishments
• The grant of a license to occupy holiday accommodation
• Charges for seasonal pitches for caravans - including supplies of facilities provided in relation to the occupation of the pitches
• Charges for pitches for tents and camping facilities.

Attractions

The temporary reduced rating also applies to businesses that make supplies of admissions that are currently taxable at the standard rate. Examples are amusement parks, museums and zoos. Admission fees to sporting events are specifically excluded from the reduced rating.

HMRC has published guidance for this sector: ‘VAT on Admission Charges to Attractions’: bit.ly/3ffyABw. 

Does this mean a price reduction for customers?

The measure was presented to assist the sector rather than the consumer. Each individual business will choose whether or not to pass all or part of the VAT reduction on to its customers or whether to maintain its current prices and benefit from the saving itself

How does this impact on the Flat rate scheme?

HMRC’s guidance on the temporary reduced rating advises that certain flat rate scheme percentages have been reduced in line with the temporary reduced rate of VAT. However, at the time of writing, the flat rate scheme trade sector percentages in VAT Notice 733 – The Flat Rate Scheme for Small Businesses have not been reduced.

Which invoices will be VATable at 20% and which at 5%?

Where a supply takes place on or after 15 July 2020, but payment is received or an invoice is issued before this date, if the normal tax point rules are followed, the date of the payment or invoice would become the tax point date for the supply, meaning it would be subject to VAT at 20%. In cases where there is a change of VAT rate, it is possible to use the special provisions in the VAT Act 1994 that allow the supplier to treat the date of supply as the tax point, making the supply reduced-rated.

Eat Out to Help Out Scheme

The Eat Out to Help Out Scheme will entitle every diner to a 50% discount of up to £10 per head on their meal, at any participating restaurant, café, pub or other eligible food service establishment. The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal (including on non-alcoholic drinks) for the month of August 2020 across the UK. Participating establishments will be fully reimbursed for the 50% discount.

Businesses can register now until 31 August - Details on the registration process are here bit.ly/2ZV9gun.

Businesses can register if they:

• Sell food for consumption on the premises
• Provide a dining area or share a dining area with another establishment for eat-in meals
• Was registered as a food business with the relevant local authority on or before 7 July 2020.

Businesses cannot register if they

• Only offer takeaway food or drink
• Provide catering services for private functions
• Caters for room service only in a hotel setting
• Supply dining services (such as packaged dinner cruises)
• Are a mobile food vans or trailer

Businesses should wait until they are registered before offering discounts to customers and discounts cannot be offered before 3 August 2020.

When registering for the scheme, it is expected that businesses will offer it during the whole of their opening hours on all the eligible days that the business is open and on all qualifying sales of food or drink.

Other points

For the purposes of this scheme, the term ‘on premises’ means any area set aside for the consumption of food or non-alcoholic drink by that establishment’s customers, whether or not that area may also be used by the customers of other establishments.

Putting a table and chairs on the pavement outside a take-away or mobile van will not qualify. Establishments with only informal outside seating in an area that does not belong to the establishment and/or is not shared with other establishments, will not be eligible to participate in the scheme.

Businesses cannot apply the scheme discount to food and drink that is sold as part of a private party, event or function. However, businesses can apply the discount to food and drink sold in the normal course of the restaurant business.

If a customer only orders a non-alcoholic drink, the scheme discount applies.

Detailed records

For each day the business is using the scheme, records must be kept of:

• The total number of people who have used the scheme in the establishment
• Total value of transactions under the scheme
• Total amount of discounts given
• If businesses are using the scheme for more than one establishment, records must be kept for each.

Making a claim for reimbursement

Claims cannot be made yet. The service to claim reimbursements will be available on 7 August 2020 and the service will close on 30 September 2020.

Any money received through the scheme will be treated as taxable income.

How we can help

Please contact Samantha Daniels at Shaw Gibbs if you would like our opinion on a particular transaction and the VAT treatment which will apply to it.

We are also available to help you in managing the appropriate records that should be retained particularly with the correct treatment of supplies in transitioning from the standard rate to the reduced rate.

Whilst we cannot apply on your behalf for the Eat Out to Help Out scheme, we can advise on the process and can help in implementing and managing the records required for the scheme.