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VAT FRS temporary rate reductions confirmed

In the Government’s Summer Update on 8 July 2020, the Chancellor announced a six-month reduction in the VAT rate on supplies of food and non-alcoholic drinks from restaurants, pubs, bars and cafes, as well as to supplies of accommodation and admission to tourist attractions.

The rate cut from 20% to 5% took effect on 15 July 2020 and will be in place until 12 January 2021 to support businesses and jobs in the hospitality sector across the UK.

Many smaller businesses use the VAT flat rate scheme (FRS) as it helps simplify their VAT reporting obligations. Broadly, the FRS allows users to calculate VAT using a flat rate percentage by reference to their particular trade sector. When using the FRS, the business ignores VAT incurred on purchases when reporting VAT payable, with the exception of capital items which cost £2,000 or more.

As a consequence of this temporary reduction, the flat rate percentages used for catering (including restaurants and takeaways), accommodation and pubs have also been reduced from 15 July to 12 January 2021.

Updated Government guidance confirms the new rates as:

– Catering services including restaurants and takeaways: flat rate from 15 July 2020 to 12 January 2021 – 4.5%; flat rate up to 14 July 2020 and from 13 January 2021 – 12.5%;
– Hotel or accommodation: flat rate from 15 July 2020 to 12 January 2021 – 0%; flat rate up to 14 July 2020 and from 13 January 2021 – 10.5%
– Pubs: flat rate from 15 July 2020 to 12 January 2021 – 1%; flat rate up to 14 July 2020 and from 13 January 2021 – 6.5%.

For further details, see the Government guidance VAT Flat Rate Scheme.

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