Covid 19- VAT rate reduction for hospitality and the flat rate scheme

Flat rate scheme

August 28, 2020

The businesses that rely on social contact are greatly affected due to Covid 19. The forced closures due to the pandemic had a huge impact on certain businesses like hospitality industry. To help them recover temporary reduced VAT Rate is introduced i.e. 5% VAT will be charged on some items that are standard rated.



The temporary VAT rate reduction will be effective from 15th July 2020 and will stay in place until 12th January 2021.

This will affect VAT accounting of businesses in certain sectors, and their customers particularly to those who make supply to hospitality, hotel or holiday accommodation and certain attractions like shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions.

The temporary reduction in the standard rate of VAT, from 20% to 5%, will be applicable on items like food and non-alcoholic beverages sold for on-premises consumption (in restaurants, cafes and pubs); hot takeaway food and hot takeaway non-alcoholic beverages; sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities; and admission to attractions that are not eligible for the cultural VAT exemption.

on admission fees of these attraction temporary reduced rate will apply. Where goods are part of the admission fee (and are incidental to the main supply), the whole supply is eligible for the temporary reduced rate.


Effect on VAT Flat Rate Scheme

This has led to the changes in the sector rate of the said nature of businesses. Thus, VAT FRS users will also benefit from the temporary reduction in the standard VAT rate.

Percentages have been reduced in line with this temporary VAT rate reduction. HMRC has updated the list of VAT flat rates to show the temporary cut. Catering services and restaurants will pay 4.5 instead of 12.5. which is 0 now whereas pubs will pay 1% instead of 6%.

Hotel or accommodation between 15 July 2020 and 12 January 2021 will pay 0% VAT They had to pay the sector rate of 10.5 till 15 July 2020. But now they just can submit NIL VAT Online and they are done.

It is a big relief to these businesses and will help attract the customers due to the reduced charges as a result.

For more guidance you can visit the following sites of HMRC

-  Revenue and Customs Brief 10 (2020): temporary reduced rate of VAT for hospitality, holiday accommodation and attractions

-  VAT: reduced rate for hospitality, holiday accommodation and attractions

-  VAT on admission charges to attractions