Reduction in VAT rate to 5%– do I have to pass on the savings to my customers?

In a measure to encourage people to support the beleaguered leisure, tourism and hospitality sector, the Chancellor Rishi Sunak has announced a temporary VAT rate of 5% which will apply to food and non-alcoholic drinks from restaurants, pubs, bars, cafés and to hot take-away food. The measure also applies to supplies of accommodation and admission to attractions across the UK. The reduced rate came into effect from today, Wednesday 15 July, and will continue until 12 January 2021.

Do I have to pass on the VAT rate reduction to the customer?

This is the most common question asked by our clients.  The simple answer for most hospitality and leisure businesses is no, you do not have to, as most businesses in these sectors  advertise their services at the price they are sold to the customer, a price which will include VAT if any is payable to HMRC.

You may consider using the reduction in the VAT rate as an opportunity to reduce your prices if you feel you are operating in a price competitive market. However, where the market price for your products remains unchanged this could perhaps be seen as a temporary way of retaining a larger element of the margin and repairing your businesses finances.

Fact sheet

We have created a fact sheet which sets out the announcements and includes information you need to consider which relate to the changes.

Video

Our Indirect Taxation Partner, Jonathan Main, recently ran an online seminar focussing on these changes.  The fact sheet also contains a link to a recording of the seminar which can be watched in its entirety.

Accounting software

Our dedicated digital services advisers can help you make the necessary adjustments in your accounting software to ensure you are correctly recording your transactions.  Please get in touch if you need any support at info@mooreandsmalley.co.uk.

Contact us

If you have any questions in regards to the above content, please contact Colin Johnson at 01539 729727 or email colin.johnson@mooreandsmalley.co.uk