Have you overpaid VAT on sales of cider during the pandemic

A recent case questions whether VAT has been overcharged on sales of cider by hotels, bars and restaurants when measures were in place to encourage eating-out during the peak of COVID-19. Given four-year time limits to make claims, affected businesses should look at this urgently.

During the height of the pandemic, one measure to support the hospitality sector was a temporary lower VAT rate on eating out. The VAT rate was 5% from 15 July 2020 to 30 September 2021 and 12.5% from 1 October 2021 to 31 March 2022.

This extended to soft drink sales, but not alcohol. However, the exclusion for alcohol in the relevant regulations was made by referring to a sentence in other legislation which listed the excepted items as being ‘beverages chargeable with any duty of excise specifically charged on spirits, beer, wine or made wine and preparations thereof’. This list clearly omits cider and perry.

On this basis, Wetherspoons claimed it had overcharged some £5 million of VAT on sales during this period.

The First-tier Tribunal has rejected this claim. Courts are entitled to correct obvious drafting errors in the law, and the judge considered that this rule applied in these circumstances. 

Additionally, at the time this lower VAT rate was in force, the UK was still in the transitional period for departing from the EU. The EU Directive does allow a reduced rate of VAT to be applied to alcoholic drinks by member states, but this cannot be just for certain alcoholic drinks.

What should hotels, bars, and restaurants do now?

While Wetherspoons has lost this case, the huge amount of VAT at stake and the narrow scope for the courts to read additional words into legislation, means that an appeal is likely. However, such an appeal is likely to take another year to reach the Upper Tribunal.

Where a taxpayer thinks they have overpaid VAT, this can only be corrected for four years.

Given these time limits and when the relevant law applied, hotels, bars, and restaurants that charged 20% VAT on cider sales during this period should consider making a claim now. Waiting until this litigation has run its course risks claims falling out of time.

To discuss a potential claim, please contact Adam Cutler, or our usual Crowe contact.