Temporary VAT Cut

The chancellor has outlined his "phase 2" plan. Our VAT specialist, Steve Chamberlain, reacts to the UK Economic Update:

"As someone who lives in a seaside town whose local economy is heavily reliant on tourist spend in bars and restaurants, I was pleased to see the Chancellor’s announcement of a temporary VAT cut for supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK.

It might have been even nicer if the cost of a pint would come down, but the announcement specifically refers to non-alcoholic drinks.

The VAT specialist in me then took over. Eager for the detail, I found that the small print says that “Further guidance on the scope of this relief will be published by HMRC in the coming days.”

What we do know is that from 15 July 2020 to 12 January 2021, to support businesses and jobs in the hospitality sector, the reduced (5%) rate of VAT will apply. This is forecast to cost the Exchequer some £4.1 billion.

The announcement gives hospitality businesses, who have just had to re-engineer their operations to meet social distancing requirements, a week to reprograme tills, update menus/price lists, etc. Which doesn’t give much time.

I was also looking for guidance on whether this would extend to sales from takeaways (or even supermarkets.) If icecream is subject to 20% VAT when sold by a supermarket, but icecream is subject to 5% VAT in a restaurant, will supermarkets provide a plastic spoon and offer to let you sit at a picnic table on the premises to take advantage of the 5% rate of VAT?

While the measure is well-intentioned, there will be “devil in the detail.” Anyone remember the “pasty tax “ label applied to the 2012 changes to the VAT treatment of hot food?"

For further information regarding the update, please read here.

Stop press-HMRC has now released more detailed guidance at https://www.gov.uk/topic/business-tax/vat/latest

To discuss this further, please contact Steve Chamberlain.