Hidden bite in the recent VAT changes and Eat Out to Help Out scheme?

Published by Colin Laidlaw on 6 August 2020

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The recent changes to the VAT rate on hospitality and the introduction of the Eat Out to Help Out scheme (EOHO) are welcomed by the hospitality sector at this time as they look to open their doors and encourage footfall. However, are there hidden costs to the implementation of the changes?

Eat Out to Help Out scheme (EOHO)

It is important to recognise that VAT will be due on the full price of the meal (and drinks) provided as part of this scheme regardless of how much discount is given and amounts paid for by the consumer. Under normal circumstances, a discount would result in a lesser VAT charge because there is no further payment made. Under the EOHO scheme, the Government will be paying the discounts given and as such the hospitality provider will still receive the same amount of money albeit from different sources. VAT is, therefore, due on the full value but more importantly, it is due at the time the meal is supplied.

HMRC do make this point clear in its guidance but it is easy to forget and only record the discounted receipt as the income.

Temporary VAT rate changes

Coupled with the EOHO scheme, hospitality providers have to consider the VAT implications of the new temporary reduced rate of VAT on certain supplies. Like the EOHO scheme the reduced rate does not apply to alcoholic drinks and therefore you are likely to have a mix of VAT liabilities for each meal where alcoholic drinks are purchased. Tills need to be set up to record this properly. For the larger chains with more sophisticated tills, this can be a relatively simple operation but, for the more straightforward operations, this can be more complex. Care should be taken.

So, how does this work in practice?

A group of 4 diners have a bill of £100 which includes £20 on alcoholic drinks.

Bill before discount £100
Alcohol £20
Amount EOHO discount can be applied to £80
EOHO Discount £40
Bill after discount £60

The VAT due is as follows:

Item Price VAT rate VAT
Alcohol £20 20% (1/6) £3.33
Food £80 5% (1/21) £3.81
Total £60 £7.14

The restaurant gets £60 from customers and pays £7.14 to HMRC retaining the £52.86 net.

The restaurant then receives (at a later date) £40 from the Government.

If you would like to discuss the EOHO and temporary VAT changes, please contact your usual Kreston Reeves contact, Colin Laidlaw or Rupert Moyle.

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