VAT saving for the hospitality sector

The Chancellor Rishi Sunak has announced a cut in the VAT rate from 20% to 5% for supplies by the hospitality sector (excluding alcohol sales), effective from 15 July 2020. This is relevant to most tourism and hospitality-related activities, and the Chancellor specifically mentioned food (eat in and take away), accommodation (hotels, B&B's and campsites) and attractions (zoos and theme parks).

There is no obligation to pass on the saving to the end customer. So prices can remain the same, but the business will pay less VAT to HMRC and thus achieve a higher margin.

Businesses should ensure that supplies eligible for the reduced VAT rate are recorded separately to the 20% sales, in order to be able to keep the accounting as straightforward as possible.