Two of the hardest hit sectors in the UK by the COVID-19 crisis and subsequent lockdowns, travel bans, and business closures, are the hospitality and tourist sectors. A research study found that COVID-19 had cost the average small company almost £15,000 to date and 25% of these businesses are at risk of closing completely in the next six months. With SMEs accounting for 99% of all UK businesses, and contributing a combined £2tn annually, it’s easy to see why this is a major problem.
Fortunately, the UK Government has come to the rescue of many of these hospitality and tourist sectors by offering relief in the form of small business grants, loans, and the 5% VAT rate. The reduced rate of VAT has been applied in the hospitality and tourist sectors from 15 July 2020 until 12 January 2021. What does the new 5% VAT rate cover?
In its most basic form, the reduced VAT rate covers restaurant meals or take-aways, hotels and similar accommodations, and entrance to many tourist attractions. This measure, designed to jump start business in these important sectors, will also help to create new jobs and give the economy a boost as well.
New VAT Rate Leading To Complications
This has led to some new complications for business owners within these sectors as their payment systems are programmed to calculate VAT at the standard rate and now they must calculate the new 5% VAT rate, products that are zero rated yet still on the same order, and “meal deals” which now potentially have three different ways of recording the VAT due. The VAT must be charged and recorded correctly to avoid fines later on.
Reduced VAT Rate On Admission Fees
It’s important to note that although the reduced VAT rate covers admission fees for many entertainment and tourist attractions, it doesn’t cover admission charges for sporting events. This is because certain sporting event bookings are still subject to the 20% VAT.
To ensure that your business is compliant with proper VAT recording, contact an expert tax advisor who can help you understand the temporary 5% UK VAT rate for hospitality and tourist sectors.
Contact British American Tax
To learn more about the temporary 5% UK VAT rate for hospitality and tourist sectors, contact British American Tax today and consult with an expert tax advisor who can answer any questions you might have about taking a pro-active approach to your tax planning.
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