Temporary Change for VAT Rates
VAT TEMPORARY CHANGES – FURTHER INFORMATION
Earlier this week the Chancellor announced some significant, temporary, changes to VAT rates for certain sectors from 15 July 2020. Further guidance on who and what has been affected can be found here:
HOSPITALITY, HOLIDAY ACCOMMODATION & ATTRACTIONS
There is specific guidance here:
There is also a useful section in the full Vat Notice about what to do when the Vat rate changes ( see section 30 of the following document) https://www.gov.uk/guidance/vat-guide-notice-700#changes-in-tax-rates-and-liability
In particular this guidance is useful where you have accepted deposits before the change in rate for holidays taken after. (see section 30.12)
Payments and VAT invoices in advance of the basic tax point
If you have received a full or a part payment or issued a VAT invoice in advance of the basic tax point, then tax will normally be due on the amount paid or invoiced at the rate in force at that date (see paragraph 14.2.2).
But, if there’s a change in the tax rate before the supply is actually made, then you may choose to account for tax at the rate in force when the supply is actually made, and issue a credit note to correct any VAT overcharged on the original VAT invoice (see paragraph 30.7.5).
We have had a number of queries regarding what the change may mean for you, especially in the light of the media advocating for lower prices for consumers whilst the Chancellor was indicating that the reduction was a way for businesses particularly affected by COVID-19 to pay less tax and maximise profits. As a business you have three options:
- Keep the price that you offer to customers the same. You will pay less VAT and increase your profits at a time where they may be low due to social distancing requirements and other associated issues.
- Pass the VAT reduction saving along to clients. You keep your unit cost the same and are just adding 5% VAT onto items rather than 20% so your customer benefits from the VAT reduction. This will mean repricing your items and services.
- A mixture of options 1 and 2. You reprice your items and services by increasing your unit cost slightly and add 5% VAT so that you have a higher profit on your sales but are still passing on some saving to your customer.
Which option you take will hugely depend on your business and any difficulties that you are facing during the current conditions. In all circumstances, you will need to be prepared to communicate your choices to your customers and manage their expectations. If you would like to discuss how these options may affect your business specifically, please get in touch.
You need to review your existing booking systems, invoices, till settings or software integrations as soon as possible to ensure the correct rates of VAT are being applied. If this is something you would like support with please let us know as we have dedicated staff to help you.