After the high-level announcements earlier this week, more information is gradually being released in relation to the latest business and financial support.
The VAT reduction, although in place by the middle of next week, still has a number of areas that require further clarification. We hope the FAQs below might answer a number of your immediate questions and please do get in touch if you need any guidance as to your next steps.
Information on how to register for Eat Out and Help Out is also included in today’s update along with Scotland’s Land & Buildings Transaction Tax decision, which followed on from the reduction in stamp duty announcement.
VAT Cut – Food and Non-Alcoholic Drinks / Accommodation and Attractions
More detail has been released in relation to the temporary VAT reduction which comes into effect on Wednesday 15 July. The cut in the VAT rate from the standard rate of 20% to 5% applies to certain supplies of hospitality, hotel and holiday accommodation along with admissions to certain attractions.
HMRC continue to make updates and we have received a number of these so far, however there are a few key points for which we await confirmation:
- flat rate schemes – the guidance says it has been reduced for some sectors, but so far, HMRC have not released the new rates
- details relating to transition, eg. for pre-paid holidays or deposits
- details on how the VAT reduction will interact with the Eat Out to Help Out government support.
We are keeping a close eye on the GOV.UK website, which is being updated frequently. All the latest VAT documents can be found here.
While we wait for more clarification, we have put together a summary of the key information that is currently available in an easy to understand list of FAQs.
Who/what does the VAT reduction apply to?
Businesses that make supplies of hospitality, hotel and holiday accommodation and admission to certain attractions, and their advisers.
What are the affected supplies that will benefit from the 5% rate?
- food and non-alcoholic beverages sold for on-premises consumption eg. in restaurants, cafes and pubs
- hot takeaway food and hot takeaway non-alcoholic beverages
- sleeping accommodation in hotel, holiday accommodation, pitch fees for caravans and tents, and associated facilities
- admissions to the following attractions NB: where admission to an attraction is already covered by the existing cultural exemption, the exemption will take precedence
- amusement parks
- similar cultural events and facilities
Do you have to pass the VAT reduction to your customers by reducing prices?
There is no obligation to pass this saving to your customers.
What does your business need to do?
If your business falls within the scope, all takings, supplies and invoices affected by the VAT reduction must be charged at 5% from 15 July 2020 to 12 January 2021.
How do you record these changes on your till?
Net prices will have to be adjusted within your till system and you will need to identify and track the different tax rates, see requirements below:
- cold food sales – 0%
- food eaten in and hot takeaway food – 5%
- accommodation – 5%
- non alcoholic Beverages – 5%
- alcoholic beverages – 20%
How do you calculate the new VAT amount?
To calculate the new VAT element, you need to apply the new fraction which is 1/21.
Which VAT schemes are affected?
- cash accounting – VAT is only accounted for when payment is received, however VAT will only be due at the new rate for supplies made after 15 July
- flat rate scheme – changes have been made to the rates but we are still waiting for more details from HMRC
- retail scheme – the new rate will apply to takings received after 15 July and VAT rates will need to updated on till systems.
- annual accounting – HMRC will not change any instalment unless you expect your VAT liability to decrease (or indeed increase) significantly over the course of the year
- payment on account – the rate change will not affect payments on account.
Are there changes to claiming input tax?
After the VAT rate change you must ensure you are claiming the new rate.
Do you need to change your accounting system?
Changes will be required; additional nominal codes and tax codes will need to be put in place. But the exact details of the changes will depend which system you use. If you require assistance with this please don’t hesitate to contact our VAT department who will be able to assist.
Eat Out to Help Out (EOHO)
More details have also been released in relation to the Eat Out to Help Out (EOHO) scheme, which aims to encourage the public to eat out by offering 50% discount.
Further information including which businesses are eligible and how they can register is available on the GOV.UK website (see links below). In summary who can and can’t register are:
Who can register? Businesses that:
- sell food for immediate consumption on the premises
- provide dining areas (shared or otherwise) for eat-in meals
- were registered as a food business with their local authority on or prior to 7 July 2020
Who cannot register? Businesses that only offer:
- takeaway food or drink
- food for sale via mobile vans or trailers
- catering services for private functions
- are a hotel that provides room service only
- dining services (eg. packaged dinner cruises)
Further information about EOHO including eligible sales and how to offer the discount can be found here on the GOV.UK website.
You will need to register your business for EOHO online and this service will open from 13 July 2020. Again, reimbursement claims will be made online and this service is due to be available from 7 August 2020. You must wait seven days from registration to make your first claim and claims will be paid within five working days. The last day to make a claim will be 30 September 2020. More details on registration can be found here on the GOV.UK website.
Land & Buildings Transaction Tax (LBTT) Cut (Scotland only)
Yesterday we updated you on the reduction in Stamp Duty Land Tax (SDLT) when purchasing property in England and Northern Ireland. The Scottish Finance Secretary has since announced a similar change to LBTT (the Scottish equivalent to stamp duty).
The LBTT threshold at which this tax kicks in (for residential property) is to be temporarily increased from £145,000 to £250,000. As yet there is not a start date for the change but it is expected to be in place quickly and will continue until 31 March 2021. This means that a residential property purchase in Scotland over £250,000 will have a reduced LBTT bill of £2,100.
The benefits from the changes to SDLT and LBTT are available to those buying their own homes and residential property investors whether individuals or companies.
There is no change to the Additional Dwelling Supplement (3% in England and 4% in Scotland). For those buying a residential property that is not their main home, this charge will still apply.
Also, there are to be no changes to the SDLT or LBTT payable on commercial property transactions.
Further information on LBTT can be found here on the gov.scot website.
The Scottish Finance Secretary also announced an extra £50m was being added to its First Home Fund. The First Home Fund is a shared equity scheme whereby the Scottish Government provides assistance in return for an equity stake in a purchased property. The shared equity stake is repaid when the property is sold or the homeowner can choose to pay the money off earlier.
The whole GWA team are here to help. Everyone can be found at their usual email addresses and phone numbers. We know there are still challenging times ahead and we are happy to provide guidance to help us all move forward as positively and successfully as possible.
Information correct as of 10 July 2020