Changes to COVID-19 VAT measures

The Chancellor announced two VAT measures today as part of the ongoing COVID-19 support package.

The first is the extension of the reduced rate of VAT applicable to the hospitality and tourism sectors, until 31 March 2021. 

The second measure is an extension to the time by when organisations have to settle the VAT payments they deferred earlier this year. 

Extension to the reduced VAT rate for hospitality and tourism sector

In July 2020, the government introduced a temporary 5% VAT rate that is still in effect today. This reduced rate applies to food and non-alcoholic drinks served in restaurants, cafes, pubs and similar venues. It also applies to takeaway orders of hot food and hot, non-alcoholic drinks.

Supplies of hotel and holiday accommodation and entry to attractions also qualify for the reduced 5% rate of VAT. Hotels, bed and breakfasts and campsites are able to benefit from this when people stay with them while theme parks, zoos and cinemas will enjoy a lower rate of VAT on their entry fees. Our original client alert is available here. 

Today’s announcement extends the period of time over when the temporary 5% reduced VAT rate applies to 31 March 2021, a near three month extension. 

While the temporary reduced rate was a welcome development for many organisations, it did give rise to system and practical challenges for organisations in ensuring that they could maximise the benefits of the VAT savings. For support with the reduced VAT rate changes, including advice on what goods and services qualify and how to handle the changes, please speak to your usual VAT team contact, Robert Warne or Robert Marchant.

Further deferral to the due date for paying deferred VAT

In March 2020 the government announced an immediate deferral of VAT payments falling due between 20 March 2020 and 30 June 2020. All organisations were able to automatically defer the VAT payments due to be made between these dates until 31 March 2021. 

Today’s announcement introduced a New Payment Scheme, whereby deferred VAT payment amounts can be made in instalments, rather than as a single lump sum falling due on 31 March 2021. The details released so far by HMRC say that the amount owing can be split across 11 months, and no interest will be charged on the deferral. All organisations are eligible for this deferral and will need to opt-in using HMRC’s opt-in system, which HMRC hope to launch in early 2021. 

It should be noted that the measures do not apply to VAT payments falling due from 1 July 2020 onwards. If organisations have difficulties in making these VAT payments, they should be able to agree a “time to pay” arrangement with HMRC and Crowe can support you in applying for this.