On Wednesday the supply of certain hospitality, holiday accommodation and attractions dropped to 5%, rather than standard rate. This is a temporary reduction for 6 months and businesses need to have systems in place for recording the different types of sales they make, if not all of their supplies are effected by the announced changes.

We have received a number of questions about these changes and are highlighting some of the more common ones below.

The Flat Rate Scheme

If you are in the sectors above, HMRC have reduced the rates for the following business activities:

Catering services including restaurants and takeaways before 14 July 2020 and after 12 January 2021 12.5
Catering services including restaurants and takeaways after 15 July 2020 4.5
Hotel or accommodation before 14 July 2020 and after 12 January 2021 10.5
Hotel or accommodation after 15 July 2020 0
Pubs before 14 July 2020 and after 12 January 2021 6.5
Pubs after 15 July 2020 1

See https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay for a full list of activities.

How to account for deposits? – Time of supply

The basic tax point is when a supply takes place, however this can be brought forward if a payment is made in advance of the taxable supply. This covers deposits made in advance of a holiday booking, the time of supply for this will be the date payment is made.

There are special rules relating to time of supply when the VAT rate changes. A business can chose to use the basic tax point or the earlier tax point of when the deposit is received. If you need to amend any invoices, credit notes will need issued along with new invoices, and this needs to be done within 45 days.

What is meant by on premises consumption?

When a customer comes into the premises you are going to have to ask them if they are eating in or taking away. All food and drink to be consumed on site (except alcohol) will be a reduced rate supply (5%) from 15 July 2020.

If the customer is taking the food & drink off site, hot drinks and hot food will be a reduced rate supply. However, ice creams, sandwiches, cold drinks etc will need to be zero or standard rated.

For larger venues that have stalls, on premise consumption will include the stall itself, and any facilities provided adjacent to the stall for the use of customers. Additionally, a food retail outlet in a shopping centre includes food court areas shared with other premises. What doesn’t count as on-premises consumption are general picnic benches available to all members of the public, not just your customers.