COVID-19: 8th July Update inc VAT changes

French Duncan


 

The below article details new initiatives announced on Wednesday 8th July 2020, updated 8am Monday 13th JulyFor ALL our latest updates on support available around COVID-19, please visit: www.frenchduncan.co.uk/covid-19.  This links to various resources, all of which we are keeping updated as things progress.

You can also follow us on Twitter or LinkedIn to keep informed of all the changes.

 

VAT Rate Drop for the Hospitality Sector:

The chancellor has announced a temporary rate cut for the hospitality and tourism sector today, dropping VAT from 20% to 5% on food, accommodation and attractions.  The reduced rate will take effect from 15th July until 12th January 2021, with a view to encouraging people to get out and support one of the sectors worst hit by the coronavirus pandemic. 

This will be viewed by many as great news and a positive step in the right direction to support the UK’s tourism industry, indeed campaigners have fought for a VAT rate cut across the tourism sector for many years, highlighting the fact that the UK has one of the highest VAT rates in the EU applying to its tourism industry.  For example, Germany has a hospitality rate of 7%, whilst Spain and Italy apply 10%.

Many EU countries have also introduced additional rates cuts since the pandemic struck, to further support the sector and encourage new spending, though there remains a healthy degree of scepticism as to whether such measure are actually effective.  Certainly, the introduction of these reduced rates in other countries have had mixed results, with many restaurant owners choosing not to pass the saving onto their customers, but retaining the difference in tax themselves.  Whilst this may help the restaurant owners recoup some of their lost revenue, it defeats the purpose of introducing the lower rate in the first place.

In addition to speculation over the benefits to be accrued from a change in rate, there is also the added administrative burden of implementing these changes within the business accounting systems; in this case with very little notice!  This is particularly challenging for the hotel sector, which generally relies on a complex property management system to ensure the hotel booking systems and related financial reporting systems run smoothly.  Given there are over 30,000 hotels currently operating in the UK, if even half of these turn to their system suppliers for assistance to make the required changes to their systems, this is likely to prove to be a tall order for any software suppliers.

French Duncan’s Hotel Accounting managing director, Ian Bremner, knows all too well the challenges faced by the hotel sector, having seen first-hand the challenges the rate change in 2008/2009 brought to the industry. Whilst there are many practical problems that will need to be addressed, Ian explained that one of the major challenges faced by hotels is how to deal with customer stays that will straddle the VAT rate change; these type of reservations will need to be cancelled and re-entered in the system to ensure that the correct VAT rate is applied.  Deposits paid will need to be refunded where this results in an overpayment, or recalculated where they relate to stays which straddle the rate change; and all of these issues will need to be redone when the rate change returns to 20% in 6 months’ time!  All of this against a backdrop of social distancing measures which mean that restaurant and hotel capacity will be unavoidable reduced over the same time period.

So, whilst it is encouraging that the Government recognises the need to throw a lifeline to the hospitality and tourism sector in the UK, it remains to be seen if a temporary drop in VAT rate will have provide the desired benefits or if these will be outweighed by the additional admin costs required to implement the change.

Update @ 10th July:

Further to the above, a new Revenue & Customs Brief provides some further clarity around what does and doesn’t qualify to fall within the definition of hospitality, holiday accommodation and attractions (click here to read it in full).

Notable points of clarity provided via this business R&C Brief include the reference to only ‘non-alcoholic’ beverages’ as part of a supply of food and drink or catering.  The reduced rate does not apply in any circumstances to the supply of alcohol.  In addition, supplies of food and drink that are supplied as part of a supply of catering services for consumption ‘off-premises’ remain subject to VAT at 20%.  This will affect businesses that offer catering services at events and functions such as weddings.

A wider definition of attractions has also been provided, which clarifies that, where the cultural exemption applies to admission to any attraction, this will take precedence and the reduced rate need not apply.  The cultural exemption allows qualifying bodies to treat admission to certain attractions as exempt for VAT.

Whilst the introduction of a reduced rate across the hospitality sector is welcomed by many, it may also cause some administrative issued for businesses that have a limited time to make changes to their accounting systems to cope with the change in VAT rate.  Add to this the potential headache of how to treat pre-payments for supplies, and many in the sector will be struggling to ensure that VAT is correctly accounted for.  However, what many businesses may not be aware of is the ‘special provisions’ that are available when a change in VAT rate occurs.  These are set out in S88 VATA 1994, but are summarised in HMRC’s VAT Guide (Notice 700) at paragraph 30.7 (specifically 30.7.4). 

The guidance is, for once, quite helpful and clarifies that businesses can opt to apply the lower rate, even where a service has been invoiced or paid for ahead of its supply (as is often the case in the hotel sector), providing the service is supplied after the lower rate becomes applicable; however a credit note must be issued to the customer to correct the VAT position when the supply takes place.  Whilst this confirms that it is not mandatory for a business to change the VAT rate applied in these circumstances, many in the hotel and holiday accommodation sector may come under pressure from customers to do so.

If you'd like to discuss any of this further, or need help in your business, contact our Head of VAT Maria McConnell (click here).

Update @ 20th July:

HMRC have now confirmed the new Flat Rate Scheme (FRS) rates for those services affected by the VAT rate cut in the hospitality industry, as set out below:

  • Catering services including restaurants and takeaways:
    • flat rate from 15 July 2020 to 12 January 2021: 5%
    • flat rate up to 14 July 2020 and from 13 January 2021: 12.5%;
  • Hotel or accommodation:
    • flat rate from 15 July 2020 to 12 January 2021: 0%
    • flat rate up to 14 July 2020 and from 13 January 2021: 10.5%
  • Pubs:
    • flat rate from 15 July 2020 to 12 January 2021: 1%
    • flat rate up to 14 July 2020 and from 13 January 2021: 6.5%.

If you have any queries about what this means for your business, contact our Head of VAT Maria McConnell.

 

"Eat Out to Help Out" Initiative:

Throughout the month of August, this discount will apply to meals eaten at any participating business on Monday to Wednesday and will be a 50% discount on your bill, to a maximum of £10 per head, including children. The Chancellor called this the "Eat Out to Help Out" initiatives, designed to encourage more people out to pubs and restaurants to provide them with a much-needed revenue boost.

The government will open a website where businesses can register for the scheme online, due to go live Monday 13th July.  The funds the businesses can claim back should be paid within five working days from a claim being made.

More information on eligibility and how to apply can be found on the Government website by clicking here.

We will provide more information once the site is live.

 

Stamp Duty / LBTT changes:

With immediate effect, the nil rate threshold for stamp duty land tax on residential property transactions is increased from £125,000 to £500,000. It is anticipated that this change will be in place until 31 March 2021 when the threshold will reduce. These threshold changes only apply in England and Northern Ireland.

The Land and Buildings Transaction Tax (LBTT) threshold for residential properties in Scotland is to be raised from £145,000 to £250,000 from 15 July 2020. This falls short of the change announced for England and Northern Ireland where the threshold has temporarily been increased to £500,000 with immediate effect. It is intended that both changes will be in force until 31 March 2021. The rates for additional dwelling supplement (the supplement on purchases of additional residential properties such as buy-to-lets and second homes) and non-residential LBTT are unchanged.

 

Back-to-work bonus scheme & the end for Furlough:

We've now published a separate blog specifically about this, please click here to take a look.

 

 

Other COVID-19 Information:

We also have COVID-19 / Coronavirus blog articles, which will be kept updated, on:

For all our help, support and information around COVID-19 / Coronavirus visit www.frenchduncan.co.uk/covid-19, where you can link to articles business loans, personal tax & self-assessmentdebt assistance & restructuring and much more.

 

 

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