Independent VAT Consultant
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VAT 5% rate: The biggest problems clarified

Neil Warren considers the three biggest problems encountered so far with the new rules on the temporary 5% VAT rate for hospitality, tourist attractions and accommodation.

17th Jul 2020
Independent VAT Consultant
Columnist
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The legislation (SI 2020/728) to impose the new 5% VAT rate is now in place, with new Groups 14 to 16 added to Sch 7A of the VATA 1994 – ie the reduce rated schedule.

One surprising point is the specific exclusion of admission to ‘sporting events’ was not mentioned in the legislation, despite being a very clear omission in HMRC’s guidance.  However, HMRC is obviously satisfied that the sporting exclusion is automatic within the wording of the law.

Previous articles

For the background and other relevant information about the temporary VAT reduction, see my previous two articles:

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Replies (11)

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By agknight
18th Jul 2020 10:38

I understood there is a 45 day rule, in that the stay had to be taken within 45 days of the Vat change in order to capture the deposit Vat at 5%? So I was simply going to issue credits and reinvoice the deposit now at 5%. Is this right can anyone answer please?

Also to clarify, depending on how the Vat term and condition is worded, I think it would be legit even where Happy Holidays have issued an invoice, to reissue it at 5% Vat, for the existing full amount. In other words Happy Holidays capturing the gain, just like example 2.

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Replying to agknight:
rebecca cave
By Rebecca Cave
19th Jul 2020 10:10

That's very valid point. The article has been amended to clarify the 45 day rule for issuing a credit note.

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Replying to Rebecca Cave:
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By EllaB
20th Jul 2020 09:51

Looking at the article it says the credit note must be issued within 45 days - rather than the stay must be within 45 days - does anyone know which is correct? Also looking at the VAT inclusive example would it be the case that the B&B gets the benefit of the reduction rather than the guest?

Many thanks for any clarification.

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Quack
By Constantly Confused
20th Jul 2020 08:20

Great article as always, about the only thing I enjoy reading on AW these days are Neil Warren articles.

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By James Bolger
20th Jul 2020 08:52

Does anybody have a view on whether a crazy golf course might qualify for the 5% VAT rate?

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By David160
20th Jul 2020 09:43

If a client gets the rate wrong, and applies 20% instead of 5%, would the unjust enrichment rules apply. If the client intended to keep prices the same, not reducing them by the 15% VAT reduction, but gets the rate wrong, would the unjust enrichment rules apply then?

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By Mrbailey
20th Jul 2020 13:47

Beautiful reading making fiscal neurons fiscally effervesce and erupt like a volcano.

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By JOHNB10
21st Jul 2020 15:58

Client Static Caravan park invoiced in January for year at 20% vat for 12 months and has received his fees. Can he now issued a credit note for the 15% vat from 15 July to 31 December? Clients are asking for VAT back.
If not can he issue invoices for next year on 01 January at 5% for the whole of next year with request to be paid within first two weeks for the reduced VAT charge?

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By webbly
24th Jul 2020 09:35

I have a client who receives deposit income a long time in advance of actually supplying hot food goods. My client is wondering what VAT rate to apply on deposits that are received up to 12 January 2021, for actual supplies after that period? Anyone care to share some thoughts

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By Chris Pittock
29th Jul 2020 15:08

I certainly don't want to disagree with Neil, but (a) I was brought up on "the Tax point date is the earliest of goods delivered/funds received or date money received " in which case the Tax point date in example 1 is the date the deposit was received so should be at 20%, and (b) surely it depends on whether the price of the stay was £1,000 plus VAT or £1,200 including VAT, and finally (c) is there not a difference for VAT treatment for deposits depending on whether they are refundable or not?

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By Sloglaw
08th Mar 2021 11:00

Can you help with the issue of a guest paying a deposit now but staying after the rate reverts to 20%. A guest pays a deposit of £1000 on March 1st 2021 for his wedding in 2022. We account for VAT at 5% on the deposit received. When the wedding takes place in 2022 (assuming the VAT has reverted to 20%) Do we have to issue a credit note then for the original deposit then re-invoice to show VAT @ 20%. or can we allow the original deposit to be credited at 5% VAT. I had always understood that, with services, the point of sale, was the date the supply took place. Any help much appreciated

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