The Chancellor has announced a temporary cut to the VAT rate from 20% to 5% on supplies of food, accommodation and entry fees
to attractions for the next six months. Unfortunately, lockdown conditions have severely impacted the businesses that were relying
on social contact, such as the hospitality and property sectors. Therefore, this recovery measure was introduced in the Summer
Economic Update aimed at stimulating the economy after the Covid-19 pandemic.
A reduced (5%) rate of VAT on food and non-alcoholic drinks sold for on-premises consumption, for example, in restaurants, cafes and pubs, will take effect from 15 July 2020 to 12 January 2021. Alcoholic drinks will remain subject to the standard 20% rate. Food and drink supplied for consumption off-premises will also be subject to a standard VAT rate.
For the same period, we will see the reduced rate also applied to supplies of accommodation and admissions to attractions across the UK such as hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents. Admissions to attractions, for example, theatres, museums, zoos, exhibitions which are covered by the cultural exemption, will not be eligible, as the exemption will take precedence.
The temporary VAT cut also affects the VAT Flat Rate Scheme (FRS), meaning that some rates covered by the VAT Flat Rate Scheme have changed. This enables VAT FRS users to benefit from the temporary tax reductions as well.
Check the HMRC website for more information about the temporary VAT rate for certain items.
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