Information on the reduced rate of VAT for hospitality, holiday accommodation, and attractions
Published 15 July 2020
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Who is likely to be affected
Businesses that make certain supplies relating to hospitality, make supplies of holiday accommodation or charge for admission to certain types of attractions.
General description of the measure
The government announced on 8 July 2020 that it intended to legislate to apply a temporary 5% reduced rate of VAT to certain supplies relating to hospitality, hotel and holiday accommodation and admission to certain attractions. The reduced rate will last for a temporary period between 15 July 2020 and 12 January 2021.
Policy objective
To support businesses and protect 2.4 million jobs following the lifting of the Covid-19 lockdown, the Government will temporarily apply a reduced rate of VAT (5%) to certain supplies in the tourism and hospitality sectors. This will support the reopening of the economy following the outbreak of the coronavirus pandemic and help to re-establish habits such as eating out in restaurants. It will come into effect on 15 July 2020 and end on 12 January 2021 and apply across the UK.
Background to the measure
This temporary relief is being introduced as an urgent response to the coronavirus emergency. Its main objective is to support businesses severely affected by the coronavirus pandemic and social distancing measures.
Under current UK VAT law, the standard rate of VAT (20%) applies to all supplies of restaurant services, hot takeaway food, holiday accommodation and admission to many attractions. This measure cuts the rate of VAT on these supplies from 20% to 5%.
As the government has decided to implement this as an emergency measure to support the reopening of businesses, it has not been possible to consult in the time available.
Detailed proposal
Operative date
The measure will have effect from 15 July 2020.
Current law
Currently under VAT Act 1994, a standard rate of 20% applies to:
- supplies in the course of catering including supplies of hot and cold food and drink to be consumed on the premises and supplies of hot takeaway food and drink to be consumed off the premises
- the provision of hotel and holiday accommodation, pitch fees for caravan parks and tents and related facilities
- admission to attractions not covered by the cultural exemption (see below)
Group 1, Schedule 8 to the Value Added Tax Act 1994 (VATA) applies a zero rate to a large range of supplies of food sold in the UK, including a large range of cold takeaway food. It also applies a zero rate to a limited number of drinks but expressly excludes alcoholic beverages.
Groups 1 and 13 of Schedule 9 VATA applies an exemption from VAT to the following supplies respectively:
- most grants of an interest in, or a right to occupy, land excluding hotel and holiday accommodation and pitch fees for caravans and tents
- admission charges to museums, galleries, art exhibitions, zoos and theatrical, musical or choreographic performances of a cultural nature, when supplied by a public body or an eligible body (as defined)
Proposed revisions
A temporary reduced rate will be introduced by adding new Groups 14, 15 and 16 into Schedule 7A VATA.
The reduced rate will cover the following supplies:
- hospitality: hot and cold food and hot and cold non-alcoholic beverages sold for on-premises consumption – for example, in restaurants, cafés and pubs - and hot takeaway food and hot non-alcoholic beverages sold for consumption off the premises. It does not include alcoholic beverages of any kind
- accommodation: sleeping accommodation provided in a hotel or similar establishment, holiday home accommodation, pitch fees for caravans and tents and supplies of associated facilities
- attractions: admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities provided that these are not included within the existing cultural exemption
This measure also amends regulation 55K of the VAT Regulations 1995 to ensure that businesses in these sectors that use the flat-rate scheme will also be able to benefit from the reduced rate for the period that it applies.
This measure will take effect from 15 July 2020 until 12 January 2021. It is intended that the negative procedure statutory instrument will be laid before Parliament on 14 July 2020 to come into force on 15 July 2020. The extent and application will be the whole of the United Kingdom. There are no matters relevant to English Votes for English Laws.
Summary of impacts
| Exchequer impact | (£m) | ||||
|---|---|---|---|---|---|
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
The measure is expected to decrease receipts. The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.
Economic impact
This measure is expected to boost spending in the hotel, hospitality and tourism sectors.
Impact on individuals
This measure is expected to have a positive impact on individuals who go out for meals, buy hot takeaway food, stay in hotels or other holiday accommodation or visit the types of attractions outlined above. This measure temporarily reduces VAT charged on these supplies from 20% to 5%. Customer experience is expected to improve accordingly. It will also support tourism in these sectors.
This temporary relief is being introduced as an urgent response to support the reopening of businesses following a period of closure. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will have impacts on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a significant impact upon more than 100,000 businesses by substantially reducing the VAT they are required to charge and account for to HMRC. This temporary relief is being introduced as an urgent response to support the reopening of businesses. One-off costs will include familiarisation with the changes and could include changes to IT systems and / or menus to alter prices. There are not expected to be any ongoing costs.
Customer experience for impacted businesses is expected to improve given the supportive and positive nature of this measure.
This measure is not expected to have any impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will incur negligible costs in implementing this change.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
This measure will be monitored through information collected from tax returns and receipts, as well as through communication with affected taxpayer groups.
Further advice
If you have any questions about these changes, please contact HMRC at VATtourismandhospitality@hmrc.gov.uk.
Declaration
The Rt. Hon. Jesse Norman MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.