Reduction in VAT rate to 5%: What happens to VAT on deposits?

Background

Following on with our series of publications regarding the temporary VAT rate reduction announced by Chancellor Rishi Sunak, we now look at deposits and advanced payments made prior to the VAT rate change. This note highlights an opportunity to recover VAT on deposits received before the VAT rate reduction on 15 July.

Accounting for VAT on deposits

You are required to pay VAT to HMRC on the earlier of a deposit being received from or a VAT invoice being issued to your customer. If you received a deposit before 15 July, you will therefore have paid 20% VAT. Following the Chancellors announcement, 5% VAT will now be due on all cash receipts qualifying for the reduced rate until 12 January 2021. This applies to both deposits and balancing payments received by your business. If you receive a deposit now for a booking after 12 January 2021 you pay VAT at 5%.

Recovery of VAT

If you received a deposit before 15 July, for a booking between 15 July and 12 January 2021, you can reduce the VAT paid on the deposit.

For example, if a customer paid you a deposit for holiday accommodation on 1 March 2020 of £150, £25 VAT will have been declared to HMRC (20%). If the booking is between 15 July and 12 January 2021, you can choose to recalculate the VAT due on the deposit at the reduced rate. The VAT due to HMRC on the deposit will therefore be reduced to £7.14 and you can recover £17.86 when you submit your next VAT return. It is your decision whether to retain this repayment of VAT to improve your financial position or pass it on to your customers as a gesture of goodwill.

If you issued a VAT invoice when you received the deposit, you will need to issue a credit note showing the reduced rate of VAT.

Please get in touch if you require further information or assistance with the calculation of any VAT to recover from HMRC.

Please contact Jonathan Main on 01772 821 021 or equally email jonathan.main@mooreandsmalley.co.uk

For more information on this recent reduction in VAT to 5% please see our other blogs below:

If you need any further information in regards to VAT please check our recent VAT hub for further insights.

Reduction in VAT rate to 5% – special considerations if you use the flat rate VAT scheme

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 served in restaurants, pubs, bars, cafés and similar venues and to hot take-away food and hot take away drinks. The measure also applies to supplies of accommodation and admission to attractions across the UK. The reduced rate came into effect on Wednesday 15 July and will continue until 12 January 2021.

HMRC guidance has been issued and we also have just received the underpinning VAT legislation.

The VAT flat rate scheme (FRS) is a special VAT scheme aimed specifically at small businesses and is intended to reduce the administration associated with preparing and submitting VAT returns.  It allows a registered trader to calculate the amount of VAT they need to pay HMRC by reference to their gross turnover only, applying a sector specific percentage to this figure.

What happens if I use the VAT flat rate scheme?

The percentages that apply to businesses that operate the flat rate scheme have been amended to take account of the 5% rate. The relevant rates are as follows:

  1. “Catering services including restaurants and takeaways” has been reduced from 12.5% to 4.5%
  2. “Hotel or accommodation” has been reduced from 10.5% to 0%
  3. “Pubs” has been reduced from 6.5% to 1%.

We can help you decide whether it is better to remain in the FRS or leave to take advantage of normal accounting. You can decide to come out of the FRS but you cannot re-join for 12 months.

Please do get in touch if you require further information or details on how to amend your accounting software.  

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

Reduction in VAT rate to 5% – what is an attraction?

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 served in restaurants, pubs, bars, cafés and similar venues and to hot take-away food and hot take away drinks. The measure also applies to supplies of accommodation and admission to attractions across the UK. The reduced rate came into effect on Wednesday 15 July, and will continue until 12 January 2021.

HMRC guidance has been issued and we also have just received the underpinning VAT legislation.

The reduced rate can be applied by businesses that make supplies of admissions that are currently taxable at the standard rate. This includes:

  • Shows
  • Theatres
  • Circuses
  • Fairs
  • Amusement parks
  • Concerts
  • Museums
  • Zoos
  • Cinemas
  • Exhibitions
  • Similar cultural events and facilities

Examples provided by HMRC of where the reduced rate may apply could be attractions such as:

  • A planetarium
  • Botanical gardens
  • Studio tours
  • Factory tours

There will be many other instances in which the reduced rate can apply to the admission charge. It does not include any supplies that are exempt from VAT and the temporary reduced rate does not apply to admission to sporting events or participation in sporting activities. 

This temporary reduced rate applies to the admission fee and any goods supplied at the same time, as long as they are ‘incidental to the main supply’.

There are lots of examples already amongst our clients of attractions which qualify for the reduced rate and a conversation to clarify matters will always be worthwhile.

We have also created a fact sheet and have other blogs in this series.

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

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

Preparing for a VAT cut

In a measure to encourage people to support the beleaguered 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 will also apply to supplies of accommodation and admission to attractions across the UK. The reduced rate will be introduced with effect from Wednesday 15th July and will continue until January 12th 2021.

This is a welcome move for this sector which has been badly hit by lockdown restrictions. There are however difficulties with targeted VAT rate cuts in terms of creating anomalies, unfair competition and compliance issues – just getting it right and not falling foul of HMRC’s VAT penalty regime. We highlight below some practical steps a business can take immediately to prepare.

The last VAT rate cut back in 2008 was brought in very quickly and caused major implementation issues for all types of businesses. It should be noted that this was the first time a VAT rate cut was used as part of a fiscal stimulus solution and if you have experience of this last time round you will agree that being prepared will be important for a stress free implementation.

“Preparing for such a big change at such short notice will be a major challenge for some businesses. For example, a pub will need to distinguish the VAT rates between non-alcoholic and alcoholic drinks for the first time.”

During August participating restaurants will also be able to discount meals from Monday to Wednesday and then reclaim up to £10 per person from the government. The VAT treatment of the government’s contribution is still to be announced, but we anticipate that this will be treated as part payment for the meal and therefore liable to VAT at the new 5% rate. This could create an accounting challenge, particularly if payments are delayed.

VAT rate change checklist

Software changes. Can you do this in-house and set up new tax codes or do you need a software provider upgrade? Contact them now and get project management time booked in.

Prepare in-house invoice templates so that changes can be made to allow a new VAT rate to be charged. This can take up more time than expected and internal resources will be needed to implement this.

Book marketing campaigns to coincide with the VAT rate cut. Do you have post Coronavirus campaigns in the pipeline? If so, bear this VAT rate change in mind.

If you have already taken deposits – you can choose to use the lower rate if the sale takes place after the change. The option to use the ‘basic tax point’ is going to be valuable for some attractions who have made advanced ticket sales. A difficulty is whether to pass on the benefit of the rate reduction to the customer. Failure to do so may create bad publicity, but cash strapped businesses may need to retain some of the benefit for themselves.

For prices in menus or on displays – stickers are a quick fix to match the item or a VAT discount can be offered at the point of sale at the till.

“A reduction in the VAT rate will benefit hotels, pubs and tourist attractions in the UK, encouraging travellers to holiday at home. Tour operators offering holidays in the UK, will want to see their suppliers passing on the VAT cut.”

If you have any questions in regards to the above content, please contact Jonathan Main at 07760 166802 or email jonathan.main@mooreandsmalley.co.uk

Summer Economic Update – what is the impact on the leisure and tourism sector?

The leisure and tourism sector received some welcomed support measures from the Government in the July Economic Update. Rishi Sunak revealed some new initiatives to help boost customer demand as lockdown measures are eased and businesses start to reopen. 

The main headlines were:

Eat Out to Help Out scheme

The Eat Out to Help Out scheme will entitle diners a 50% discount, capped at £10 per head, on eat-in meals in participating restaurants. The scheme will apply to meals taken on Mondays to Wednesdays throughout August, and will include the cost of non-alcoholic drinks. Participating restaurants will be reimbursed by the government for the 50% discount.

We await detail on how VAT will be accounted for on the discount.

A temporary cut in VAT

From 15 July 2020 to 12 January 2021, the rate of VAT will be reduced from 20% to 5% on food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. Further guidance on the scope of this relief will be published by HMRC in the coming days.

Over the same period, the VAT will be reduced to 5% on tourist accommodation and attractions including cinemas, theatres and zoos.

Our VAT Partner, Jonathan Main, filmed a webinar discussing these changes which you can watch here. We have also developed a factsheet detailing the ways in which businesses can prepare for a VAT cut rate and the key points to consider.

There were also numerous measures to help employers:

Job Retention bonus

The government will make a £1,000 payment to businesses for every furloughed employee that they bring back to work. To qualify, the employee must be continuously employed until 31 January 2021 at a wage of at least £520 per month. Payments will be made from February 2021. It is unclear whether employees will qualify if they have already returned to work, and further detail will be announced by the end of July.

Kickstart Scheme

The government will fund the cost of wages of newly created jobs for 16-24 year olds who are on universal credit. The subsidy will cover 100% of the national minimum wage plus NIC and auto enrolment pension contributions, for a six-month period.

Traineeships

The government will pay a £1,000 subsidy to businesses who provide young trainees with work experience. These will be offered for 16-24 year olds with Level 3 qualifications and below.

Apprentices

The government will pay £2,000 to employers in England for each new apprentice they hire aged under 25, and £1,500 for apprentices aged 25 and over. The payments will be made for apprentices hired from 1 August 2020 to 31 January 2021.

Further details

For details of other measures that were implemented in the Update, please visit our dedicated Hub page.

Contact us

We will release more information as they are revealed. If you would like further information please contact Colin Johnson.

Summer Economic Update

Summer Economic Update

8 July 2020

The key points and changes from Rishi Sunak’s summer statement

Summer Economic Update

The 2020 Summer Economic Update is unique for both its timing and its focus on what measures will be implemented to help the economy bounce back from the impact of Covid-19.

Summer Economic latest updates

Our new blog details the changes from a Tax perspective, including VAT, Eat Out to Help Out scheme, Job Retention bonus and much more.

This easy to read infographic summarises the key points from the recent economic update.

Tony Medcalf Video Review

Tony Medcalf, head of Tax gives a short five minute overview of what the Summer Economic update means for you and your business.

Sector specific news

Some of the measures announced yesterday directly impacted the leisure and tourism sector. Here is our overview of what it means for businesses operating in the sector.




Summer Economic Webinar

Professor Joe Nellis, Global Economist from Cranfield University will be providing his view on the future outlook for the UK and global economy post-Covid-19, and also the longer term impact of the Government’s unprecedented stimulus packages. He will also be taking live questions afterwards.

Summer Economic VAT Update Webinar

In our latest VAT Webinar, Jonathan Main analyses the recent Summer Economic Update from Rishi Sunak, focusing on how the update mainly affects the Leisure and Tourism sector. As well as other pressing VAT issues and news including, Time To Pay (TTP), Trapped VAT, VAT Accruals, Bad Debt Relief and much more.

Contact Us

Rishi’s Summer Statement

It is a sign of these unusual times that the Chancellor of the Exchequer has made more Financial Statements in four months than most Chancellors make in their full term of office. And in today’s financial statement, the measures announced by Mr Sunak were more dramatic than we would normally see in a full Budget.

The Chancellor’s focus was on jobs, and he made a series of announcements designed to minimise unemployment when the furlough scheme ends at the end of October.

We summarise below the main changes that will be of relevance to businesses and charities.

VAT

From 15 July 2020 to 12 January 2021, the rate of VAT will be reduced from 20% to 5% on food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. Further guidance on the scope of this relief will be published by HMRC in the coming days.

Over the same period, the VAT will be reduced to 5% on tourist accommodation and attractions including cinemas, theatres and zoos.

Eat Out to Help Out scheme

The Eat Out to Help Out scheme will entitle diners a 50% discount, capped at £10 per head, on eat-in meals in participating restaurants. The scheme will apply to meals taken on Mondays to Wednesdays throughout August, and will include the cost of non-alcoholic drinks. Participating restaurants will be reimbursed by the government for the 50% discount.

We await detail on how VAT will be accounted for on the discount.

Job Retention bonus

The government will make a £1,000 payment to businesses for every furloughed employee that they bring back to work. To qualify, the employee must be continuously employed until 31 January 2021 at a wage of at least £520 per month. Payments will be made from February 2021. It is unclear whether employees will qualify if they have already returned to work, and further detail will be announced by the end of July.

Kickstart Scheme

The government will fund the cost of wages of newly created jobs for 16-24 year olds who are on universal credit. The subsidy will cover 100% of the national minimum wage plus NIC and auto enrolment pension contributions, for a six-month period.

Traineeships

The government will pay a £1,000 subsidy to businesses who provide young trainees with work experience. These will be offered for 16-24 year olds with Level 3 qualifications and below.

Apprentices

The government will pay £2,000 to employers in England for each new apprentice they hire aged under 25, and £1,500 for apprentices aged 25 and over. The payments will be made for apprentices hired from 1 August 2020 to 31 January 2021.

Stamp Duty Land Tax

From 8 July 2020 to 31 March 2021, no SDLT will be payable on residential property purchases up to £500,000. This measure applies to England and Northern Ireland.

Green Homes Grant

The government will introduce a Green Homes Grant to subsidise two thirds of the costs incurred by homeowners and landlords on making their properties more energy efficient. The grant is capped at £5,000. For the lowest income households, the scheme will fully subsidise these improvements, up to £10,000 per household.

What next?

The Chancellor promised a Budget and Expenditure Review in November, and stated that he wanted to put back the nation’s finances on a “sustainable footing.” Whether this translates into tax rises in the short term remains to be seen.

The Chancellor has previously signalled that he wants to review the tax landscape for self-employed workers. The launch of the Coronavirus Job Retention Scheme highlighted to Mr Sunak the difference in the tax and NIC treatment of employed and self-employed workers, together with the system of  taxation of dividends which is seen as anomalous in certain quarters. He had nothing further to add to the subject today, but a wide-ranging review would seem to be on the cards.

Calls have been made for a Wealth Tax by the Shadow Chancellor, Anneliese Dodds. It is not clear how much tax would be raised by such a measure, nor whether it would be embraced by Mr Sunak.