09 Jul 2020 1:07 PM

Yesterday the Chancellor announced that he was reducing the rate of VAT applicable to hospitality and leisure sectors from the standard 20% to the reduced 5% rate of VAT.

The reduction comes in effect from 15 July and will last until 12 January 2021.

The reduction applies to food and non-alcoholic drinks as well as accommodation and admission to attractions across the UK. Pubs in particular will be disappointed to learn that the VAT reduction does not apply to alcoholic drinks.

Care will need to be taken in accounting for VAT to apply the correct rates and account for the change both now in July and in January when the rate is again increased.

Whilst typically VAT is passed on to consumers, so customers will be expecting to benefit from the savings on their day trips, staycations and meals out, we are yet to understand whether businesses will retain prices and keep the benefit of the VAT reduction themselves to cover their own deficits from the pandemic or whether the saving will in fact be passed on to customers in a bid to generate increased sales.

If you have any questions, please do not hesitate to contact us.