Rishi Sunak announced on 8th July 2020 a temporary cut to the VAT rate as an urgent response to the COVID-19 pandemic to support businesses severely affected by forced closures and social distancing measures.
The VAT Rate reduction
VAT registered businesses can take advantage of a temporary 5% reduced rate of VAT between 15th July 2020 and 12th January 2021. This will be a 15% reduction for most businesses that usually pay VAT at the standard rate of 20%.
The 5% reduced VAT rate can be applied to the following supplies relating to hospitality, accommodation and admissions to certain attractions:
Food and non-alcoholic beverages for consumption on premises, for example, a restaurant, café or pub
Hot takeaway food and hot takeaway non-alcoholic drinks
Sleeping accommodation in a hotel or similar establishment
Certain supplies in relation to holiday accommodation
Charge fees for caravan, tent pitches and camping facilities
Admission to certain attractions like, planetariums, botanical gardens, studio and factory tours
Manging the accounting part of the reduced VAT rate
In most cases, you will simply account for VAT at 5% for supplies made between 15 July 2020 and 12 January 2021. However, there may be situations where you receive payments or issue invoices before 15 July 2020 for supplies that take place on or after 15 July 2020.
The VAT reduction also applies to businesses within the scheme:
Catering services including restaurants and takeaways - reduced from 12.5% to 4.5%
Hotel or accommodation - reduced from 10.5% to 0%
Pubs - reduced from 6.5% to 1%
These are significant changes and you’ll have to make sure your software provider can handle the changes when it comes to submitting to HMRC.
Has Nomisma been updated to account for this temporary measure?
Nomisma is a user friendly and flexible software, as a result we’re already prepared for the changes. All you need to do is update your business’s VAT Rate setting so transactions of these supplies can be applied at the reduced rate of VAT. It’s as simple as that. When things go back to normal, you just need to switch the setting back to the standard rate. We will remind you about this when the time comes through our built-in support announcement system.
Interested in Nomisma?
Find out more about our flexible cloud accounting suite, contact us today by calling us on 020 3021 2326 or send an email to [email protected].