5% UK VAT Rate

by | Oct 1, 2020

The reduced 5% rate of VAT applied from 15 July 2020 until 12 January 2021, in the hospitality and tourist sectors.

In broad terms this reduced VAT rate covers; restaurant meals or take-aways, hotel and similar accommodation, and entrance to tourist attractions.

Many businesses that serve food also sell items which are still subject to the standard rate of VAT, such as alcoholic drinks, snacks, and takeaway sandwiches which are zero rated. Some of our clients are finding that their tills are having difficulties coping with two or three rates of VAT on one order, and we are therefore having to help clients to re-calculate the correct amounts of VAT to pay over to HMRC.

The VAT treatment of “meal deals” can also be complicated, there are potentially three different ways of recording the VAT due.  Where the meal deal includes hot food such as a pizza the reduced rate will also apply and again we are working with our clients to ensure that the VAT is correctly recorded on such meal deals.  

It is important to remember that the 5% rate only applies to food eaten on the premises or hot takeaways, so catering contracts, where the food is eaten at another venue, are standard rated. If the caterer uses the flat rate scheme for small businesses, they can benefit from the lower flat rate percentage of 4.5%.

The reduced VAT rate on admission fees for attractions doesn’t cover admission charges for sporting events. HMRC has now clarified that the 5%VAT rate doesn’t apply to admission to sporting facilities and well as sporting events. Thus, bookings to use a tennis court or five-a-side football pitch are still subject to 20% VAT.

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