5% VAT Cut for the Hospitality and Tourism Businesses

As we start to come out of lockdown, the chancellor has been busy announcing lots of financial support to help businesses survive including a VAT cut for the hospitality and tourism industry.

And if you’ve seen the recent excitement around MacDonalds getting even cheaper, then this is what it’s all about.

The hope is that with lower prices, it will promote more customer spending to boost the economy due the Coronavirus crisis to help businesses affected by lockdown and social distancing.

What is the VAT Cut for the Hospitality and Tourism Businesses?

VAT has been cut from 20% to 5% for restaurants, holiday accommodation and tourist attractions in the UK between the 15 July 2020 and 12 January 2021 on:

  • Food
  • Non-alcoholic drinks
  • Hot takeaway food and hot takeaway non-alcoholic beverages that has been prepared (not pre-packaged)
  • Hotels, holiday lets and B&Bs
  • Pitch fees for tents and caravans
  • Entry fees to tourist attractions like theatres, circuses, zoos and cinemas (pre-prepared food would not be eligible once inside)

Sporting events are excluded from the VAT cut, as is cold takeaway food

How to Claim the VAT Cut

Businesses are not legally required to pass the VAT cut to 5% onto their customers. So if you are paying for something, you should ask whether the business is signed up to the scheme.

If you are a VAT registered business and decide to pass the VAT cut on, then you’ll need to record your transactions as normal but using 5% instead of the usual 20%.

The Flat Rate Scheme and the VAT Cut

If you are using the flat rate scheme, then you should be aware that the flat rate percentages have been cut in line with this scheme for relevant businesses between 15 July 2020 and 12 January 2021:

  • Hotel or accommodation 0% (was 10.5%)
  • Pubs 1% (was 6.5%)
  • Catering services including restaurants and takeaways 4.5% (was 12.5%)

Check the Full List of Businesses Eligible for the VAT Cut On the Government Website

New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:

  • Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
  • Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
  • Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
  • VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
  • Invoice Template – Free template and step-by-step guide so you can get paid by your clients.
Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.