Reduced rate for VAT for hospitality

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Organisations that make supplies of hospitality, hotel and holiday accommodation and admission to certain attractions will receive a temporary reduction in the rate of VAT to 5%.

The measure, brought in by the government from July 15, 2020, will see a cut in the VAT rate from the standard rate of 20% until January 12, 2021.

These changes are being brought in as an urgent response to the coronavirus (COVID-19) pandemic to support businesses severely affected by forced closures and social distancing measures.

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

  • food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs
  • hot takeaway food and hot takeaway non-alcoholic beverages
  • sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities
  • admissions to the following attractions that are not already eligible for the cultural VAT exemption such as:
  • theatres
  • circuses
  • fairs
  • amusement parks
  • concerts
  • museums
  • zoos
  • cinemas
  • exhibitions
  • similar cultural events and facilities

Where admission to these attractions is covered by the existing cultural exemption, the exemption will take precedence.

The reduced VAT rate does not only impact hospitality businesses which make the supplies listed above – it will also impact any VAT registered businesses which purchase any affected supplies.

For example, if you purchase a restaurant meal while away on business travel, you will only be able to reclaim VAT at 5% rather than the standard 20%.

The reduced VAT should be shown on your VAT invoice.

“Clients who do their own bookkeeping need to be aware of this VAT cut,” said Anna Rowson-Smith, software specialist at Ellis & Co.

“You may find that you will need to alter the settings within your software package, e.g Xero, Quickbooks, Freeagent or Sage to accommodate for 5% VAT on any coffees or meals that are bought.”