Summer Statement – tasty VAT measures

Published by Rupert Moyle on 8 July 2020

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The Chancellor announced in his Summer Statement several measures in terms of support for businesses.

It’s important to remember that HMRC have already helped businesses through COVID-19 with a number of measures. The indirect tax reliefs have been to remove VAT and Duty on imported (donated) medical equipment, as well as to allow a temporary zero VAT relief for supplies of personal protective equipment (PPE) within the UK.  Let’s not forget too that businesses could choose to defer VAT payments for their recent quarter until the end of March 2021.

HMRC has also delayed the impact of the domestic reverse charge for the construction sector and implemented a measure to help us get through lock-down by bringing forward plans to zero-rate e-books, where only physical books previously qualified for zero VAT. It may not have been live sport, but it helped some!

Clearly, the concern for the Government now is kick-starting the economy and bringing life back to as ‘normal’ as can be expected. One of the ways they have chosen to do this is to help the plight of the British hospitality and entertainment sector. The Chancellor’s Summer Statement has highlighted two tasty VAT measures (and a non-VAT one) to entice us back into staying away from our homes – eating out and visiting attractions that have reopened.

‘Eat Out to Help Out’ scheme

First, the non-VAT measure for each and every one of us. 50% off the eat-in price of food and non-alcoholic drinks during August at restaurants, cafes, pubs and similar “eligible” food service establishments, subject to a maximum discount of £10 per head. It may not equate to 50% off at all restaurants but it is welcome. More details will be issued to clarify the scope of this offer.  Businesses will be able to claim back the discount from the Government. Cheers to the Chancellor, albeit with a glass of non-alcoholic beer!

Temporary VAT cut for food and non-alcoholic drinks

The second measure reduces the VAT rate to 5% for food and (again) non-alcoholic beverages supplied by restaurants, pubs, cafes and similar establishments, during the period from 15 July 2020 to 12 January 2021. Once again, more detail will be issued by HMRC to clarify this, but it will be welcome news for businesses in the sector.  It might also be good news for the general public but the question is whether businesses will pass on the relief to us or, perhaps understandably, keep the reduction in VAT that it achieves from the (gross of VAT) charge for themselves. The aim of this second measure is also predominantly about helping businesses in our communities.

Temporary VAT cut for accommodation and attractions

The third measure again reduces the VAT rate to 5% during the 15 July 2020 to 12 January 2021 period. It applies to accommodation and to admissions to attractions across the UK.  That is all the detail we have at present; more will be issued shortly. Some will be wondering if their business is included as an “attraction”.

Businesses will need to study the detail when it arrives to ensure that their supplies are covered by the reliefs. Another issue we can foresee that may arise will be in ensuring systems and people can cope with the differentiation in VAT rate between supplies, such as meals and alcoholic beverages. The temptation may be to shift the value of meals and drink toward the reduced rate of 5% VAT by offering discounts or free items, but we expect that will be covered and prevented by HMRC when the detail is announced.

It is interesting to note that a reduced rate relief is applied by a number of EU countries currently to accommodation (tourism) for example, and that Germany reacted by reducing its standard rate recently to stimulate all areas. Organisations such as charities, builders and car dealers may have hoped for a similar more general VAT reduction, but for the UK the reduction from 20% to 5% is a (more) substantial help for the food, hospitality and attractions sectors.

Please get in touch with myself or a member of our VAT team with any VAT related queries.

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