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VAT Rate changes

VAT Rate changes

HMRC has now issued thier Guidance about the VAT rate cut that is due to take effect on Wednesday 15th July 2020.

So what’s changing?

  • Food and drink for pubs, cafes, restaurants
  • Overnight accommodation
  • Tourist attractions

Food and drink

The rules for food and drink sales by pubs etc are fairly straightforward:

  • On-site consumption: All sales of food and drink will be subject to the reduced VAT rate, apart from alcoholic drinks, which are still subject to 20% VAT.
  • Takeaway sales: If it is hot food or a hot drink being sold, and it is not alcoholic, it is subject to 5% VAT – otherwise 20%. Mulled wine will be excluded because it is alcoholic.

Tourist attractions

Locations that will now be entitled to 5% instead of 20% are shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions, similar cultural events and facilities.

Hotel accommodation

Accommodation will be charged at 5% and a hotel deposit received before the rate change but where the stay takes place afterwards can be subject to 5% VAT but at the option of the business owner. 

Flat rate scheme (FRS)

The guidance also confirms that the relevant flat rate percentages for categories covered by the reduced rate will be adjusted temporarily.

What business owners need to do

Between close of business on Tuesday 14th July and opening of business 15th July businesses will need to update their tills to reflect the correct recording of VAT at 5% where appropriate.

In theory this should lead to price reductions of 15% for the end consumer but business owners are considering the financial cost of reprinting menus and updating websites etc so are keeping their prices the same but only 5% goes to the VAT man compared to the 20% currently.

This is legal providing the businesses receipts clearly show the rate of vat paid is 5%. Although legal it defeats the object of the six month cut to encourage increased spending and in actual fact increases profit margins by 15%.

If you need more help understanding the new rates and rules please reach out to us at



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