Proof of the pudding in the eating for VAT change

In the Plan for Jobs presented by the Chancellor today (8 July 2020), it was announced that the rate of VAT on supplies of food and non-alcoholic drinks by restaurants, pubs, bars, cafes and similar premises will be cut temporarily from 20 per cent to five per cent.

Jeremy Coker, ATT President, said:

“Struggling hospitality businesses will welcome this temporary VAT cut but, as it comes into effect on 15 July, they will have only a week to adjust prices and update their tills and accounting systems.

“The proof of the pudding is in the eating, so it is welcome that HMRC are committing to publishing further guidance in the coming days, especially as the exact scope of the reduction, and who can apply it, remains unclear. The businesses which will benefit from this measure are still getting to grips with reopening and the adjustments they need to make to keep their staff and customers safe. We would urge HMRC to make guidance as simple and practical as possible.”

Also announced on 8 July was the introduction of ‘Eat Out to Help Out‘. This will see the Government contribute up to £10 per head towards the cost of certain eat-in meals bought by diners on Mondays to Wednesdays during August.

Jeremy Coker, continued:

“This proposal is certainly innovative, but the interaction with the tax system will have to be considered. In particular, we need to know how those businesses which receive payments from the Government under the scheme will treat them for VAT purposes.

“The changes announced today serve to once again highlight the complicated rules around VAT on food and drink. Many of these derive from the old Purchase Tax regime, which was replaced with VAT when the UK joined the EU in 1973. As a result, they are often out of date and difficult to apply in the modern world.

“We suggest¹ the end of the Brexit transition period on 31 December 2020 presents an opportunity for the Government to consult more widely on ways to modernise and rationalise the VAT rules on food and drink. A clearer, more up to date set of rules would reduce confusion and save both businesses and HMRC the time and costs associated with arguments over VAT treatment.”

Notes for editors

1. See Tax experts urge review of VAT food rules