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A temporary cut to VAT from 20% to 5% on food, accommodation and attractions in the hospitality sector has been put in place for the period 15 July to 12 January 2021.
This will apply, across the UK, to:
There may be situations where the customer has already agreed a fee / been invoiced / has paid for the service at the higher VAT rate. At a basic level, the consequences are:
payment was not received before the removal of the goods or the performance of services; and
the invoice is issued after the change of rate but not later more than 14 days after the removal of the goods or performance of the services,
then the supply may benefit from the reduction in rate.
However, businesses that have advised HMRC in writing that they do not wish to apply the 14 day rule are unable to benefit in these circumstances. There are also a number of businesses that have agreed an extension to the 14 day rule with HMRC. Such an extension would allow businesses more time to take advantage of the reduction in the VAT rate.
Businesses should take care not to be pressured into incorrect adjustments of VAT due as this would result in them being exposed to assessments and penalties.
The commercial considerations are different when the VAT rate falls from when it increases, and the notes above are not in themselves a basis for definitive action.
How can we help?
Clients who may be affected by the rate reduction should take appropriate advice. If you would like to discuss how these changes may affect you, please speak to:
Paddy Behan – Partner, Indirect Tax Services
Paddy advises on the full range of VAT for businesses and their advisors. As well as providing consultancy, he also acts for clients in relation to penalties and disputes, and appeals to the First-tier Tribunal. 020 7291 5652
Anthony Martin-Luce – Manager, Indirect Tax Services
A non-practising barrister with a Masters in Laws, Anthony has more than 15 years’ experience in VAT and indirect taxes and specialises in land and property, finance and insurance, partial exemption, and certain customs matters. 020 7291 5611