VAT rate reduction extension

VAT rate reduction extension

The Chancellor has announced that the Government’s VAT cut to help the hospitality and tourism sector during the coronavirus crisis is to be extended for another six months. The temporary VAT cut (from 20 per cent to 5 per cent) that was introduced on July 8 will now continue until 31 March 2021.

The reduction does not have to be passed onto consumers however where it has or other savings have been applied, suppliers and consumers have both benefited. The tax cut applies to food and non-alcoholic drinks, as well as accommodation and admission to attractions, however it does not extend to alcohol.

The tax saving is for all businesses in the leisure and hospitality industries, including hotels, restaurants and attractions such as cinemas and theme parks. The extension to the reduced rate should therefore affect businesses in the following sectors:

• Restaurants, cafes and pubs
• Hotels, inns, boarding houses and similar establishments
• Holiday and caravan parks and other holiday accommodation businesses charging fees for tent pitches or camping facilities
• Shows
• Theatres
• Circuses
• Fairs
• Amusement parks
• Concerts
• Museums
• Zoos
• Cinemas
• Exhibitions
• Similar cultural events and facilities

If the VAT reduction is passed on in full, it will reduce the price paid by consumers by 12.5%. When the VAT cut was first announced, the Treasury said the reduction was expected to save households around £160 a year on average. It has been suggested that the saving could reduce a one-week family staycation by £300.

VAT Deferral New Payment Scheme

The Chancellor doesn’t want businesses to face large bills for deferred VAT just as the economy is recovering. A New Payment Scheme has therefore been introduced to help businesses pay deferred VAT.

Deferred VAT was originally due to be paid at the end of March 2021. Businesses will now be able to make 11 interest free smaller repayments in the 12 months to 31 March 2022. This is expected to benefit up to half a million businesses – on average turning a one-off £60k payment in March, into 11 payments of less than £6k.

For those that opt-in, it means that their VAT liabilities due between 20 March and 30 June 2020, will need to be paid by end March 2022.

The Government has said that giving businesses the option to defer VAT has been a success: over half a million businesses deferred their VAT payments, a cash injection of around £30bn into the UK economy when it needed it most.