Home » Temporary reduced rate of VAT for hospitality, holiday accommodation and attractions

Temporary reduced rate of VAT for hospitality, holiday accommodation and attractions

In the Summer Economic Update, the Chancellor announced a temporary VAT reduction to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK, as well as for accommodation and attractions. From 15 July 2020 to 12 January 2021, the reduced (5%) rate of VAT will apply to these supplies subject to meeting the criteria set out in the guidance.

Charities that provide holiday accommodation or hospitality and manage cafés and restaurants should ensure that they are aware of the planned changes. The temporary VAT reduction of admission to attractions may be relevant to some charity venues, however, please note that if the fee you charge for admission is currently exempt that will take precedence and your supplies will not qualify for the reduced rate.

Following the announcement, HMRC has now published:

Charities can also find out how to register their restaurant or establishment for the Eat Out to Help Out Scheme. This scheme will entitle every diner to a 50% discount of up to £10 per head on their meal, at any participating restaurant, café, pub or other eligible food service establishment. The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal (including on non-alcoholic drinks) for the entire month of August 2020 across the UK. Participating establishments will be fully reimbursed for the 50% discount. Registration for the scheme is now open and will close on 31 August. Please note that you’ll still need to pay VAT based on the full amount of your customers’ bills. Any money you receive through the scheme will be treated as taxable income.

*Update*: Attractions listed as eligible in the guidance included: shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions, similar cultural events and facilities. Having reviewed the legislation underpinning this change (the Value Added Tax (Reduced Rate) (Hospitality and Tourism) (Coronavirus) Order 2020), CTG expressed reservations that the SI was too prescriptive in terms of the type of attractions that qualify as, following discussions with members, it was understood that there could be other attractions that were not listed which would reasonably be construed as being within the spirit of the legislation, for example:

  • Historic houses open to the public which are not officially registered as museums
  • Other buildings and places of historic interest, for example windmills, lighthouses, forts, towers etc
  • Admission to gardens and parks [not botanic gardens, which are listed]
  • Admission to sites of natural beauty, for example a waterfall/river gorge operating as a pay-for-entry site.

CTG asked whether HMRC could confirm that the intention was for all of these types of visitor attractions to be included, perhaps falling within the final catch-all of “similar cultural events and facilities”? HMRC officials responded: “The wording we’ve used in the legislation is a straightforward copy from the VAT directive so I can appreciate it’s quite broad. So, to clear this up – the cost of admission to all the attractions you’ve mentioned below is included within the reduced rate.” This provides helpful clarification, but if you are unsure whether any of your attractions qualify for the reduced rate, please contact info@charitytaxgroup.org.uk.

CTG also asked HMRC to confirm that the 5% reduced rate carries across into calculations for membership subscription apportionment calculations, where one of the benefits of membership is free admission to the charity’s properties, as per the HMRC VAT Manuals VBNB60600. HMRC has confirmed that the reduced rate also applies to the value of the admission to visitor attractions when apportioning the output tax of subscriptions. Again this is a welcome clarification.

VAT: reduced rate for hospitality, holiday accommodation and attractions

The Government made an announcement on 8 July 2020 allowing VAT registered businesses to apply a temporary 5% reduced rate of VAT to certain supplies relating to: hospitality, hotel and holiday accommodation and admissions to certain attractions. The temporary reduced rate will apply to supplies that are made between 15 July 2020 and 12 January 2021.

Hospitality

If you supply food and non-alcoholic beverages for consumption on your premises, for example, a restaurant, café or pub, you’re currently required to charge VAT at the standard rate of 20%. However, when you make these supplies between 15 July 2020 and 12 January 2021 you will only need to charge 5%. You will also be able to charge the reduced rate of VAT on your supplies of hot takeaway food and hot takeaway non-alcoholic drinks. More information about how these changes apply to your business can be found in Catering, takeaway food (VAT Notice 709/1).

Hotel and holiday accommodation

You will also benefit from the temporary reduced rate if you:

  • supply sleeping accommodation in a hotel or similar establishment
  • make certain supplies of holiday accommodation
  • charge fees for caravan pitches and associated facilities
  • charge fees for tent pitches or camping facilities

More information about how these changes apply to your business can be found in Hotels and holiday accommodation (VAT Notice 709/3).

Admission to certain attractions

If you charge a fee for admission to certain attractions where the supplies are currently standard rated, you will only need to charge the reduced rate of VAT between 15 July 2020 and 12 January 2021. However, if the fee you charge for admission is currently exempt that will take precedence and your supplies will not qualify for the reduced rate. More information about how these changes apply to your business can be found in VAT: Admission charges to attractions.

The Flat Rate Scheme

If you are a small business and use the use the Flat Rate Scheme to simplify your VAT calculations you should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT. More information can be found in VAT Flat Rate Scheme.

The Tour Operators Margin Scheme

If you are a business that buys in and resells travel, accommodation and certain other services, and you act in your own name, you may operate the Tour Operators Margin Scheme to simplify your calculations. Further information about how the introduction of the temporary reduced rate of VAT will affect your calculations can be found in Tour Operators Margin Scheme (VAT Notice 709/5).

Accounting for supplies that straddle the temporary reduced rate

In most cases, you will simply account for VAT at 5% for supplies made between 15 July 2020 and 12 January 2021. However, there may be situations where you receive payments or issue invoices before 15 July 2020 for supplies that take place on or after 15 July 2020. More information about this can be found in sections 30.7.4 to 30.9.2 of VAT guide (VAT Notice 700).

VAT on admission charges to attractions

Check which attractions are eligible for the temporary reduced rate of VAT from 15 July 2020.

Who this applies to

This applies to 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 of where the reduced rate may apply could be attractions such as: a planetarium, botanical gardens, studio tours, factory tours

It does not include any supplies that are exempt under Items 1 or 2 of Group 13 of Schedule 9 to VAT Act 1994. The temporary reduced rate does not apply to admission to sporting events.

This temporary reduced rate only applies to admission fees. However, where goods are part of the admission fee and are incidental to the main supply, the whole supply is eligible for the temporary reduced rate. Further information can be found in paragraph 8.1 of VAT guide: VAT Notice 700.

Supplies which include other incidental supplies

If the main supply is the admission fee to one of the attractions listed above and any other supplies included are incidental, the whole supply will be eligible for the temporary reduced rate. It is the responsibility of each taxpayer to demonstrate that its supplies are eligible for the temporary reduced rate.

Example 1 : The supply of admission to a tour of a brewery or distillery includes an incidental supply of food and drink as part of the tour. This will be a single supply and will benefit from the temporary reduced rate. However, if the provision of food and drink is the main purpose of the supply, it would not qualify.

Example 2: The supply of admission to an event such as an exhibition that includes an incidental supply of a brochure or activity book, would be a single reduced rated supply.

Live online performances

If an admission fee is charged to view an online live performance (not a pre-recorded event), this may be eligible for the temporary reduced rate of VAT. This depends on the circumstances in each case and is subject to the fee not already being covered by the Cultural VAT exemption. When considering the correct VAT liability, you should also check the HMRC Public Notice 741A ‘Place of Supply of Services’, which also includes links to relevant guidance on digital services.

Updated VAT Notice 709/3: Hotels and holiday accommodation

Find out when you need to pay VAT if you provide holiday accommodation, caravans and camping facilities.

This notice has been updated to reflect legislative changes that introduce a temporary 5% reduced rate on supplies of the:

  • provision of sleeping accommodation in: hotels, inns and boarding houses and similar establishments
  • grant of a license to occupy holiday accommodation and charges for: seasonal pitches for caravans – including supplies of facilities provided in relation to the occupation of the pitches and pitches for tents and camping facilities

All references in this notice to “temporarily reduced rated” or “temporary reduced rate” are to supplies made between 15 July 2020 and 12 January 2021.

The law in relation to the temporary reduced rate

This notice now also covers the following areas of the VAT Act 1994: Section 29A of the VAT Act 1994 provides that the goods and services specified in Schedule 7A to the Act are reduced rate supplies. By virtue of The Value Added Tax (Reduced Rate) (Hospitality and Tourism) (Coronavirus ) Order 2020, Schedule 7A, Group 15 specifies any supply which, because it falls within paragraph (d), (e) so far as the supply consists of the grant of a license to occupy holiday accommodation, (f) or (g) of Item 1 (Land) in Schedule 9, is not an exempt supply by virtue of that Item as being entitled to the new rate

VAT liability of accommodation

From 15 July 2020 until 12 January 2021 a hotel, inn, boarding house, or similar establishment will benefit from a temporary reduced rate of 5% when supplying:

  • sleeping accommodation, including bathrooms, living rooms and suites
  • accommodation used for the supply of catering (see paragraph 4.1)
  • rooms provided with sleeping accommodation

If you provide furnished sleeping accommodation for long stay guests, please see section 3.

See section 4 for information about other types of supplies made by hotels, inns, boarding houses and similar establishments, such as conference facilities and wedding packages

Examples of how to calculate reduced VAT value under the temporary reduced rate

The weekly terms for accommodation, facilities and meals in a boarding house are £105.00, that is, £100.00 plus £5.00 VAT at a temporarily reduced rate of 5%, of which £42.00 represents the tax inclusive charge for meals. (For the purpose of these examples the proportion for meals has been taken to be 40% but this will not always be so.)

VAT (at the temporary reduced rate) is chargeable on the full amount for the first 28 days and on the reduced value thereafter. After the first 28 days of occupation the reduced VAT value may be calculated in one of the following ways:

(a) If your charges are shown as VAT exclusive the amount of VAT you should charge each week is calculated as follows:

Details £ VAT (£)
Total VAT exclusive charge 100.00
Less VAT exclusive charge for meals 40.00 2.00
VAT exclusive accommodation charge 60.00
VAT exclusive value of facilities (20% of £60)
(20% being a minimum of accommodation charge)		 12.00 0.60
Total VAT due 2.60

The weekly charge from the 29th day is £100.00 + £2.60 VAT.

The weekly charge before the 29th day is £100.00 + £5.00 VAT.

(b) If your charges are shown as VAT inclusive and the total amount charged to the guest is reduced after the first 28 days to take account of the reduced element of VAT, the weekly rate of VAT is the same as in (a) but the calculation is as follows:

Details £ VAT (£)
Total VAT inclusive charge 105.00
VAT inclusive charge for meals 42.00 2.00
Balance for facilities and accommodation 63.00
VAT included at reduced rate (1/21 of 63) 3.00
VAT exclusive accommodation charge 60.00
VAT exclusive value of facilities (20% of £60.00)
(20% being a minimum of accommodation charge)		 12.00 0.60
Total VAT due 2.60

The weekly charge from the 29th day is £100.00 + £2.60 VAT.

The weekly charge before the 29th day is £100.00 + £5.00 VAT.

Whichever method you use, you must include the full VAT exclusive amount of your charges in box 6 of your VAT Return, even though VAT is due only on the reduced value. This is because the part of the total charge that is for accommodation continues to be for a temporarily reduced -rated supply, even though its value for the purpose of calculating VAT due becomes nil after the first 28 days.

The full VAT exclusive amount is included in your turnover for VAT registration purposes.