TT327: Temporary reduced rate of VAT and impact on flat rate schemes
From 15 July 2020 the hospitality, holiday accommodation and attraction sector will benefit from a temporary reduction in the rate of VAT from 20% to 5%. This temporary VAT rate will run until 12 January 2021. These changes are being brought in as an urgent response to the coronavirus pandemic to support businesses severely affected by forced closures and social distancing measures.
Those smaller businesses in the hospitality sector, typically with turnover less than £150,000, that currently make use of flat rate schemes have also been allowed to benefit from this reduction.
VAT flat rate schemes are designed to allow a fixed flat rate percentage to be applied to gross turnover to arrive at the VAT due. There are different flat rates depending on the sector.
The main benefits of the scheme are:
- simplified record keeping and accounting, as you do not have to keep detailed records of sales and invoices;
- fixed rate percentages that are lower than the standard rate; and
- it helps to manage cash flow.
From 15 July 2020 until 12 January 2021, the flat rates have been reduced as follows:
- Catering services including restaurant and takeaways: reduced from 12.5% to 4.5%.
- Hotel accommodation and similar: reduced from 10.5% to 0%.
- Pubs: reduced from 6.5% to 1%.
With both the temporary reduced VAT rate and the temporary reduced flat rate scheme rates, the main challenge will be to get the recording of transaction accurate within the accounting system. This may require a software system update or a user defined new VAT code set up. Either way, a careful review of the next VAT return will be needed to ensure the correct rate is applied at the correct time.
If you require support or advice on this, please talk to Barnes Roffe today.Talk to Barnes Roffe today