by Dave Watkinson www.watkinsonblack.co.uk
Do you want to save nearly 6% on the cost of taking your family out for a meal or on holiday? If so then please read on.
One of the Covid-19 schemes introduced during the pandemic was a temporary reduction in VAT charged in the hospitality trade on most sales. This reduction is being withdrawn over the next few months.
Since 15 July 2020 hospitality businesses have charged VAT at 5%. This reduction applies to most supplies made by cafes, restaurants, pubs, hotels, members clubs, caravan parks, tourist attractions such as zoos and many others. Unfortunately, it excludes alcoholic drinks, so the following does not apply to your weekly (or daily) visit to your local for the odd pint.
This 5% rate will increase to 12.5% on 1 October 2021, and will subsequently rise further to the standard 20% rate on 1 April 2022. Normal tax point rules will be applied to these rises. This means that VAT will be charged at the rate applying at the earlier of
– the supply of the goods or service,
– the date of invoice, or
– the payment date, whichever comes first.
Therefore, hospitality businesses which take advance bookings and payments before 1st October can charge 5% VAT rather than 12.5%, thus providing both a saving for their customers and a boost for their sales.
It would have been possible for the government to have included anti-forestalling provisions in the legislation. If there had been anti-forestalling legislation in the equation, the supply date would have been relevant. However, with all of the recent rate changes, the government has not applied any anti-forestalling legislation. In other words, if a business receives an advance payment before 1 October for a supply being made on or after this date, it will still be 5% VAT based on the payment date. HM Revenue and Customs have confirmed last year that the absence of anti-forestalling legislation was intended to help the hospitality industry. They said that the intention was to accelerate receipts as the advance payments would provide important working capital to cash-stretched businesses.
This means that if you are organising a function that will take place after 1st October, such as a birthday bash, but book and pay for it before 1st October then you will pay VAT at 5% rather than 12.5%. If, for instance, the cost of the evening is £50 plus VAT per head, then it will cost you a total of £52.50 if you book and pay early, but this will increase to £56.25 if you do not pay before the increase.
Prices are, of course, frequently quoted at a VAT inclusive rate. If you operate a business that charges on this basis then during September you have the opportunity to promote your business in a way that will benefit both yourself and your customer. For instance, suppose you operate a guest house and charge £300 per room per week. At a 5% VAT this equates to a sales value of £285. Once this rises to 12.5% then your sales value will drop to £266. Why not, therefore, offer a 2.5% discount on Christmas or next year’s bookings. This will mean that your customer only pays £292.50, saving £7.50, whilst providing you with a sales value of £278. Not only, therefore, will you get your money quicker but you will also get £12 more than you would if you received the money after 1st October.
Of course, if you are yourself VAT registered, and the expense is a properly deducted business expense such as staff travel, or the annual staff Christmas party, then this will not apply to you as can reclaim any VAT paid. However, even VAT registered businesses will save if the expense is not wholly deductible, such as if they invite customers to the party.
And finally, we repeat that it does not apply to alcoholic beverages. Therefore, if you are a member of a pub quiz team and go to your local every week then you will not make any savings by offering to pay up front for your next 12 months alcohol intake!!
WatkinsonBlack have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Our office is now open during all normal office hours. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
Call 01925 413210 for more details or email [email protected]
