As part of Chancellor Rishi Sunak’s Summer Economic Statement at the beginning of July, it was announced that from 15th July until 12th January 2021, VAT would be temporarily cut from 20% to 5% in the hospitality and tourism sector.
Being one of the sectors hardest hit by the coronavirus and lockdown, this move, which is estimated to cost the government around £4 billion in tax, is intended to try and boost the economy whilst the country tries to get back on its’ feet post lockdown.
But how will this reduced VAT rate affect you as a consumer, and your bookkeeping records as a business owner?
What VAT has been reduced to 5% on?
• ‘Eat in’ food and non-alcoholic drinks, as well as hot takeaway food and non-alcoholic drinks.
• Holiday accommodation, such as hotels.
• Admissions to some attractions such as theme parks, theatres, zoos, museums etc.
How it affects you
How it affects you as the consumer will depend on whether the firm has chosen to pass the saving on to you or keep it themselves. It is entirely up to the retailer as to whether they pass on the cut to its customer in full, or even at all. For some companies, having already struggled to survive lockdown, they may instead make the decision that it makes more business sense for them to hold onto the saving themselves, rather than passing it on.
Some firms have already confirmed that they will be passing on the reduction in full to their customers, whilst others have only discounted certain items on their menus.
How it affects your bookkeeping
As with all expenses that you put through your company, you should be obtaining receipts (VAT receipts where applicable). You will therefore need to check when you receive your receipt what rate of VAT has been applied to your purchase, and make sure that you record the expense accordingly. If your bookkeeping software automatically defaults to an automatic VAT rate, you may need to check and amend this for any items where the reduced VAT rate has been applied.
As mentioned above, only certain items on your receipt may have the reduced VAT rate applied, so you may need to separate individual items on a single receipt to ensure that you are accounting for them correctly. If you use FreeAgent, there is a handy guide on how best to record these expenses here. And if ever in doubt, always check with your accountant.
PaperRocket Accounting provide accounting and tax services to professional contractors, freelancers, and small businesses working in the UK.
We offer our clients a flexible choice of fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.
Each of our clients is given their own dedicated qualified accountant with unlimited access in person, telephone, or by email.
We pride ourselves on our client satisfaction and customer service and were awarded ‘Best Contractor Accountancy’ firm 2020 in The Contracting Awards and ‘Welwyn Hatfield Business of the Year 2019’ in the SME Hertfordshire awards.
To find out how we can help you please get in touch now.