The Chancellor announced that VAT in the following sectors would be reduced to 5% from 15 July 2020:

• Food and drink for pubs cafes and restaurants
• Overnight accommodation
• Tourist attractions

The reduced rate is due to end on 31 March 2021.

Further information relating to the food and drink VAT change is set out below.

• The reduction in VAT does not apply to any sales of alcohol.
• For sales which are not take away, the VAT rate of 5% will apply to all non-alcohol sales.
• For takeaway sales, the reduced rate of VAT will only apply to hot food and drink sales.

If we compare a hypothetical order taken by a café from a customer before and after the VAT change where the purchase is for the following:

• apple
• bottle of beer
• can of coke
• hot coffee
• cold sandwich
• hot pie
• packet of crisps

If the customer ‘eats in’, before the VAT change all of the items would be charged at 20% VAT. After the reduction in VAT rate, with the exception of the bottle of beer , which would still be subject to VAT at 20%, all items would be charged VAT at 5%.

If the order was a take away order, then before the VAT change, the apple and cold sandwich would be at 0% VAT and all other items at 20% VAT. After the reduction in the VAT rate, the only change would be a reduction in the VAT rate to 5% for the hot items, so the hot pie and coffee would be charged at 5%.

Further details of the change in VAT rates can be found at the following link

https://www.accountingweb.co.uk/tax/business-tax/vat-5-hospitality-rate-get-the-details-right?utm_medium=email&utm_campaign=AWTAX130720&utm_content=AWTAX130720+CID_edabd73c76b8e72c84f696468a7c09fd&utm_source=internal_cm&utm_term=Read%20more