VAT cuts for the Hospitality & Tourism sector

Nigel Roberts

Nigel Roberts

VAT Director and Head of VAT & Duty

Blog updated on 17 July with further detail on Eat Out to Help Out Scheme

As the government seeks to revive the UK economy after months of lockdown, the Chancellor announced a £4 billion commitment to reduce the rate of VAT from 20% to 5% in the hospitality and tourist sectors. Both reductions will run from 15 July 2020 to 12 January 2021.  

The two temporary reductions to support businesses and jobs in the sectors hit hardest in recent months are: 

A Temporary  VAT  cut  for  food  and  non-alcoholic  drinks  – From  15  July  2020  to  12 January 2021, to support businesses and jobs in the hospitality sector, the reduced (5%) rate  of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés  and similar premises across the UK. This includes both eat in and hot takeaways. One apparent oddity of this change is that that the same can of soft drink will attract a 5% VAT rate when bought over the counter of a pub, but 20% in a supermarket.

A Temporary  VAT  cut  for  accommodation  and  attractions  – From  15  July  2020  to  12 January 2021, to support businesses and jobs, the reduced (5%) rate of VAT will apply to  supplies of accommodation and admission to attractions across the UK.  

Accommodation defined

“Accommodation” means sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.  

Many accommodation providers have cancelled 2020 bookings but transferred retained payments to 2021. VAT at 20% will have been paid to HMRC on the original booking, but of course the same accommodation booked next week for 2021 will benefit from the 5% rate. It’ll be interesting to see whether HMRC recognise this anomaly and do anything to address it. 

Attractions defined

"Attractions" have been defined as:

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

Admissions to some of these (usually those run on a not-for-profit basis) are already VAT-exempt. This will remain the case. 

Eat Out to Help Out Scheme

The Chancellor announced the introduction of the Eat Out to Help Out Scheme. This involves participating restaurants offering a 50% discount, up to a maximum of £10 per person, to diners for food or non-alcoholic drinks to eat or drink in involves all day, every Monday, Tuesday and Wednesday from 3 to 31 August 2020. The restaurants claim the discount provided to the customers from the government.

HMRC has confirmed that the businesses must account for VAT based on the full amount of the customers’ bills. In other words the full sales price, irrespective of how much has been covered by the customer paying and how much is covered by the government.

For example, if a customer orders a sit in burger meal with a soft drink on a Tuesday in August 2020 that is priced at £10, the customer will pay £5, and the government scheme will cover the remaining £5. For VAT accounting purposes, the temporary 5% reduced VAT rate will apply to the full £10 price of the meal. As such the business will apply the 1/21 VAT fraction to the £10, and pay this amount to HMRC as output tax on this sale.