Temporary 5% VAT rate – what is covered?

Published by Rupert Moyle on 15 July 2020

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Following the Chancellor’s announcement in his Summer Statement, HMRC have now issued further guidance on the scope of goods and services that will benefit from a reduction in the rate of VAT, down from 20% to 5%, from 15 July 2020 until 12 January 2021. We will need to review the forthcoming legislation that enacts this relief and this may include some points to note and possibly rules to ensure the measure applies only to supplies within the above period, but HMRC have at this time updated their public notices containing further detail applicable to the various sectors concerned, as set out below.


The 5% VAT rate will apply to the charge for admission to ‘attractions’; those that have been standard-rated at 20% VAT.  The (cultural) exemption applicable to admissions by public and charitable organisations will continue to apply; it taking precedence over the reduced rate.

What is included:

  • Shows, theatres, concerts;
  • Museums;
  • Circuses and amusement parks;
  • Fairs and exhibitions;
  • Zoos and cinemas; and
  • Similar cultural events and facilities

HMRC confirm that the temporary reduction extends to an admission charge to a planetarium, botanical garden, live online performance and to a studio or factory tour. Needless to say, not all businesses will see their ‘attraction’ covered here and may be unsure as to whether it will fall into the category of “similar cultural events…”.  They may therefore need to qualify with HMRC if the measure applies to them, or to ask their advisers to review the draft legislation when that has been published. Sadly, what has been made clear is that admissions to sporting events are not covered by the relief.

It is the charge for admission itself that is eligible for the 5% VAT rate, not another type of supply made at the attraction, unless a business can clearly demonstrate that certain services or goods supplied with the admission are incidental to the predominant supply of admission. Helpfully HMRC has given examples of incidental items at attractions: such as a brewery tour including an incidental supply of food and drink as part of the tour, but not where the main purpose of the tour is to drink or eat; and admission to an exhibition including a brochure or activity book. These additional supplies may, of course, be covered by the other changes.

Catering and hot takeaway food and drink

What is included are essentially those supplies that would previously have been subject to VAT at 20%:

  • Hot and cold food and non-alcoholic beverages for consumption on the premises; and
  • Hot takeaway food and non-alcoholic beverages for consumption off the premises

This does mean that alcohol, whether supplied in premises or for takeaway, will continue to be at 20% VAT, as will food and drink supplied under a catering contract.

The supply has to be a supply of catering in order to qualify for the relief. Food and drink items sold for general consumption for example, in a theatre or cinema, would be subject to VAT under the normal rules.

Hotel and holiday accommodation

The 5% measure will include:

  • Supplies of sleeping accommodation in a hotel or similar establishment;
  • “Certain supplies” of holiday accommodation; and
  • Fees for caravan pitches, pitching tents and their associated facilities.

Although “certain supplies” has not been clarified it appears that this is meant to cover accommodation for which the supplier is registered for and has previously had to charge VAT at the standard rate of 20%.  Again, “similar establishments” are not clarified but they are defined in the VAT legislation; being similar to a hotel, inn or boarding house in which furnished sleeping accommodation (whether with or without catering) is provided to visitors and travellers.  Essentially, if the accommodation is treated as taxable, at 20% VAT, this relief should apply.

With hotels and similar establishments, there is currently the ability to reduce the VAT amount that is charged after 28 days so that VAT is only applicable to charges for catering and for facilities, the latter having to be valued at least at 20% of the charge for accommodation.  HMRC’s calculations in their updated notice confirm that the 5% applies to the catering supplied and to the facilities charge after 28 days.  Therefore, the good news is that the reduced rate will apply not only to supplies up to 28 days but also to any charges beyond that.

Hotel, holiday let and camping site operators will have taken deposits or issued vouchers for summer bookings and beyond and will be wondering if they can adjust the VAT that has already been accounted for on the payments.  They may also be wondering if they can take payments for summer 2021 holidays before 12 January 2021 so that the 5% can apply.  With regard to pre-15 July deposits, currently HMRC’s (general) guidance in Notice 700 allows deposits/vouchers initially accounted for at 20% VAT to be adjusted to take account of a change in rate (unless a ‘self-billing’ arrangement is in place).  The current guidance around the 5% relief does not as yet prevent this, nor the 5% VAT rate applying to deposits taken for, say, summer 2021, before the close of the relief on 12 January 2021.  HMRC’s guidance on adjustments to deposits to take account of the rate in force when the stay occurs is not compulsory.

Businesses will need to review the forthcoming legislative changes with their VAT advisers as these may possibly limit the scope of the relief.  HMRC tends to introduce legislation to limit any abusive application of a temporary relief such as what we saw with “anti-forestalling” legislation following the temporary drop in standard rate after the 2008 recession.

Systems will need to be reviewed to cope with the change in rate and a decision made on pricing and whether to pass on any saving to customers, depending on the booking terms/conditions and other commercial factors.

Other Implications

VAT Flat Rate Scheme

HMRC have announced that certain Flat Rate Scheme percentages for small businesses will change as a result of the introduction of the temporary 5% VAT rate.  The changes are yet to be announced but we expect the rates for catering services including restaurants and takeaways (12.5%), hotel or accommodation (10.5%), pubs (6.5%) will be reduced to take account of a reduction in VAT on sales.

Tour Operators Margin Scheme

For those who are subject to the Tour Operators Margin Scheme, the temporarily reduced rate for hospitality and tourism will have an effect on the mechanics of the ‘TOMS’ calculation.  Businesses affected will need to consider this as part of the various changes they will need to make to their system.

Please get in touch with Rupert Moyle, Colin Laidlaw or a member of our VAT team with any VAT related queries.

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