With the easing of certain lockdown restrictions, and in order to assist the UK in adapting to the ‘new normal’, the Government introduced temporary VAT measures to assist those sectors most negatively impacted by the COVID-19 crisis and associated social distancing measures.
From 15 July 2020 until 31 March 2021, a temporary reduced rate of VAT of 5% is applicable to food and non-alcoholic drink served and consumed on premises, hot takeaway food and hot takeaway non-alcoholic drinks. The reduced rate also applies, during this period, to hotel and holiday accommodation, and to admission to various attractions across the UK.
The measures introduced have been warmly welcomed by all in the hospitality and tourism sectors, particularly those businesses benefiting from an increase in customers embarking on a ‘staycation’ this year rather than a holiday abroad. However, as many businesses may be beginning to notice, there will be VAT complexities and administrative complications for businesses, which operate in an industry already difficult to navigate in terms of VAT.
The VAT position is likely to be more complex for those who make a mixture of supplies which are qualifying and non-qualifying for the reduction. This may, for example, apply to restaurants as alcoholic drinks will not be covered by the reduction and nor will cold drinks, such as canned soft drinks, sold for takeaway.
In addition, and as with any change in tax rates, there will be supplies which straddle the temporary reduced rate window. Businesses may have received payment or have issued an invoice before 15th July for a supply that takes place on or after 15th July. This is likely to apply to providers of holiday accommodation or leisure facilities who had received deposits in advance for stays taking place during the temporary VAT reduction period. There may be an opportunity to reduce the VAT originally accounted for at 20% on these deposits. A similar issue will arise where deposits are paid on or before 12 January 2021 for bookings after that date.
The VAT treatment of gift vouchers should also be considered by those who supply vouchers, which could previously be redeemed for goods or services of one single VAT rate, but now, due to the temporary reduced rate, can be redeemed for items of varying VAT rates. This may present an opportunity to reclaim some of the VAT accounted for on the issue of the vouchers.
Due to the complexity of the rules for certain businesses it is likely that some, who perhaps thought the changes would be relatively simple to manage, are now encountering these unusual and unexpected complications. Those impacted by the new measures should ensure that supplies affected have been correctly identified, and the necessary steps taken to ensure the VAT treatment of such supplies is accurate.