There is no denying that the coronavirus pandemic has had a massive impact on businesses across the country. The UK Government has responded to this, putting a number of measures in place to help businesses survive this difficult situation. One of these measures is the reduction of VAT for those in the hospitality sector. 
This is something that the Chancellor Rishi Sunak introduced during his Summer Statement, revealing that a targeted reduced VAT rate would be implemented, aiming at some of the sectors that have been hit the hardest by COVID-19: tourism and hospitality. 
 
At present, the rate for VAT is 20%, yet the Chancellor has reduced this by a huge 15%, meaning the new reduced VAT rate is just 5%. This is in place now, and it will remain until 12 January 2021. 
 
Non-alcoholic drinks and food that are consumed in cafes, bars, pubs, restaurants and similar premises across the country, as well as hot takeaway food and non-alcohol drinks served in takeaway establishments, are covered by this reduced rate. 
 
Alcoholic drinks are not part of the VAT reduction, so do keep this in mind! 
 
The new rate of VAT is also going to be applicable to suppliers of holiday accommodation and hotels, as well as admission to attractions across the United Kingdom - so it's a win for the hospitality sector all round. 
 
Please note that if you use the Flat Rate Scheme when calculating your VAT commitments, it is vital to be aware that the percentages have been reduced in accordance with the temporary reduction rate of VAT that has been implemented. 

Does it benefit the customer or the company? 

Certain hospitality companies are passing on this significant reduction to their customers in an attempt to attract more 'bums on seats' as it were, by appearing to reduce their prices. There are other businesses that are not passing on the reduction to their customers, and some are reducing their prices, but not by the full 15%. 
 
You need to figure out what makes the most sense for your business. Would it be better for you to use this saving to boost your profits? Or, would it make more sense to lower your prices and try to get more customers through your doors this way? Of course, keep in mind that you will need to increase your prices again in January once the normal VAT rates resume, so it would make sense to run your low prices as a special deal for 2020 if you do decide to go down this route. 
It is important to look at your books and customer projections for the rest of 2020 and beyond, and figure out what is going to make the most sense for your business specifically. If you don't have an accountant - get one! (Hint, hint!

One of the numerous measures to help the hospitality sector 

The new VAT rules represent just one of the changes that the government has made to try and help the hospitality sector to recover. Aside from this, we had the immensely successful ‘Eat Out to Help Out’ scheme which saw diners getting 50% off their bill if they ate out at certain restaurants on Mondays, Tuesdays, or Wednesdays during August, with the government essentially footing the other 50% of the bill. 

Next steps 

There's no denying that 2020 has been beyond difficult for most businesses throughout the UK, and in particular the hospitality sector. If you're in hospitality and you've been hit particularly hard, you won't be alone - it's good to know that there are ways that you can reduce your tax responsibility during this period. If you'd like us to help you get your finances in order for the rest of the year and 2021, feel free to get in touch with us today for a no-obligation chat. 
 
 
 
 
Written by 
 
Nicola J Sorrell - 
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
Tagged as: Coronavirus
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