Q : When does the temporary reduced rate apply from?
The temporary reduced rate will apply to supplies that are made between 15 July 2020 and 12 January 2021.
Q : Which businesses are included in the definition of Hospitality?
This includes : restaurants, cafés, pubs, takeaways
Q : Which items are now sold with 5% VAT included instead of 20% VAT?
- On-site consumption: All sales of food and drink will be subject to the reduced VAT rate, apart from alcoholic drinks, which are still subject to 20% VAT.
- Takeaway sales: If it is hot food or a hot drink being sold, and it is not alcoholic, it is subject to 5% VAT – otherwise 20%.
Q : I have tables and chairs on the pavement outside my premises. Is this on-site consumption, or takeaway?
This is ‘on site consumption’. Your premises for VAT purposes is the indoor area plus areas with tables and chairs on the pavement, concourse next to the main premises.
Q : Do you have a handy table of the VAT rate I should apply to my sales?
Yes we do – here it is.
| Item | VAT Rate – consumed on the premises | VAT Rate – takeaway / home delivery |
| Alcoholic drinks | 20% | 20% |
| Hot Food | 5% | 5% |
| Cold Food | 5% | 0% Zero rate |
| Hot Drinks | 5% | 5% |
| Cold Drinks (Non-Alcoholic) | 5% | 20% |
| Crisps | 5% | 20% |
| Chocolate and Ice Cream | 5% | 20% |
| Cakes | 5% | 0% Zero rate |
Note that some items have a higher VAT rate if they are taken away rather than consumed on the premises.
Q: Do I need to pass on the reduced rate of VAT to my customers by lowering my selling price?
No, you do not. It is entirely a commercial decision. There may be some consumer pressure to do this. On the other hand the general public will appreciate the pressure that cafes, restaurants and pubs have been under with a forced closure during lockdown. Note that the UK press have taken the view that the VAT saving will be passed on to customers, for example:
Q: If I do want to pass on the VAT saving to my customers, how do I calculate the new lower selling price?
Here is how it might work with two scenarios – if you pass the VAT saving on by reducing prices, or keeping the price the same and keeping the extra profit margin. There is a third option where you pass some of the saving on, and keep some of the saving.
Let’s assume you sell a coffee for £3.
| A | Current – 20% VAT | |||
| Sale Price | 3.00 | |||
| Net sale for you | 2.50 | |||
| VAT to HMRC | 0.50 | |||
| Sale Price | 3.00 | |||
| B | 5% VAT – Pass on the Saving | |||
| Net sale | 2.50 | |||
| VAT @ 5% | 0.13 | |||
| New Sale price | 2.63 | You can round this up to £2.65 | ||
| C | 5% VAT – Keep the Saving | |||
| Sale Price | 3.00 | |||
| Net sale for you | 2.86 | |||
| VAT to HMRC 5% | 0.14 | |||
| Sale Price | 3.00 | |||
So, if you keep the VAT saving yourself then your net sale price for the coffee increases from £2.50 to £2.86 which is a 14% increase.
If you want a quick method of calculating your revised selling price if you are going to pass on all of the VAT saving, then multiply the old price by 87.5%
New Price = £2.63 (from scenario B)
Old Price = £3.00
New Price Divided by Old Price * 100 = £2.63 / £3.00 * 100 = 87.5%
Q: Will I need to amend my till software for the new 5% rate?
Yes – you will need to do this before start of business on Wednesday 15th July. This applies even if you are not passing the VAT saving on to your customer through reduced pricing.
Q: Where can I find the detailed HMRC guidance on the introduction of the reduced 5% rate?
There is an overview here:
And detailed guidance on catering and food here:https://www.gov.uk/guidance/catering-takeaway-food-and-vat-notice-7091
Q: Help! I don’t understand any of this! Can you help me to make the necessary changes at my cafe/restaurant?
Yes of course. Please email us at info@oneaccounting.co.uk or call 0131 220 0152 and we can help.
