Hospitality VAT at 5% - do you know what is covered?

The recent government announcement of the introduction of a temporary rate on VAT seeks to stimulate the hospitality industry, with a cut in the VAT rate from 20% to 5% on certain supplies, until 12 January 2021. However, the legislation issued – and accompanying guidance – is somewhat brief and lacks the detail to assure affected tax payers as to whether or not they are complying correctly with these latest changes.

While what is not covered by the temporary 5% rate in some cases is clear, including for the sale of alcoholic drinks, much remains unclear.

This briefing highlights some of those areas of confusion, and offer some thought processes based on conversations we have been having with our clients.

You need to ensure that your supply not only qualifies for the 5% to apply, but also to take the commercial decision as to whether you pass on any such savings to the final consumer.

Catering

Not all catering is covered by the temporary 5% reduced rating.

• The guidance says that ‘on premises’ catering is within the 5% rate, but what does that mean?
  It needs to be your own premises, or one you lease or licence, but not on someone else’s premises.
  
  
• While hot takeaway food is also generally within the 5% rate, what about any elements that are cold or sold as a meal deal?
  These supplies will require an apportionment between the relevant VAT rates.
  
  
• Basic foodstuffs such as takeaway cold sandwiches are zero rated anyway but thought is needed, for example, for the supply of a tray of sandwiches for a client who has a meeting taking place on their own premises.

Hotels and similar

The supply of hotel and similar rooms ought to be clear cut and within the 5% rate but there are exceptions, as hotels and other establishments do not just provide rooms.

• How about conferencing?
  It seems that conference room hire is not covered and remains at 20% in establishments with hotel rooms, as this is usually a facilities charge. However, a separate charge for the catering provided would be at 5%.
  
  
• Catering for weddings hires, for example, are covered (depending on how the wedding is packaged), but the 5% rate would not apply if that catering is provided by an outside caterer to the wedding party as this is not ‘on premises’ catering, as described above.

Attractions

This is where there appears to be most uncertainty on what attractions are covered at 5%.

• The overriding focus of the 5% rate appears to be admissions to various forms of activities and exhibitions, rather than participation at events.
  
  
• This clearly covers cinemas, theatres (where the exemption is not already applied) and similar establishments. However, HMRC has included amusement parks in its interpretation of ‘similar establishments’, but only the admission to such places – not payment for additional activities.
  
  
• We are being asked about sport (where the exemption cannot be applied), which has a wide definition in VAT law and can be quite a complex area. It would seem that sports participation is not covered.
  
  
• 'Exhibitions’ are covered but can have a wide variety of definitions, so some thought is needed about what does and does not qualify.

Tax points

• Special provisions provide an option to maximise the use of the limited 5% reduced rate period – allowing you to choose to apply the ‘basic’ or ‘actual’ tax point.
  
  
• But that flexibility causes complexity, and the risk of errors, especially when involving the issue of vouchers and supplies which straddle the reduced rate / standard rate period.
  
  
• Actual tax points (invoicing for a service or receiving payment) normally override the basic tax point (service completion) but the special provisions allow a choice; tax payers have the opportunity to receive cash payments and account for VAT at the reduced rate for supplies that will be taking place well after the 12 January 2021.

Vouchers

Vouchers have a different tax point depending on whether they are ‘single’ or ‘multi-purpose’ and are not covered by the special provisions.

• For single purpose vouchers, the tax point is the supply to the customer.
  
  
• For multi-purposes vouchers, the tax point is when they are used in lieu of ‘cash’.
  
  
• The uncertainty here is which category your vouchers fall into, or how you should be treating vouchers sold as single purpose which can be used against items at 5%, and those which remain at 20%.

Anti-forestalling

• Unusually, and perhaps due to the nature of the legislation, there are no specific anti-forestalling measures (designed to stop people circumventing and abusing the rate change), in particular when the VAT rate returns to 20% on 12 January 2021.
  
  
• It would be unprecedented, but the government may introduce back-dating measures if it perceives abuse of the measures.
  
  
• The aim of this VAT rate cut was to stimulate the sectors worst hit by the COVID-19 pandemic, and get as much cash as possible into those organisations.

Join our webinar

We are running a live webinar on Thursday 13 August 2020 to discuss these 5% uncertainties in further detail. You can register here, and submit questions in advance so that we can ensure all queries and areas of concern are covered.

Contact

Please do not hesitate to contact Robert Warne below, or your usual VAT contact, if you require any assistance.