September 2021 VATwatch

Holidays

Please note that the office will be closed from 5pm on Thursday 9^th September until 9am on Monday 20^th September for holidays.

Change in VAT Rate for Hospitality

As previously announced, the temporary reduced rate for the hospitality industry is increasing from 5% to 12.5% with effect from 1 October 2021. It will then remain at 12.5% until 31 March 2022 and revert back to 20% with effect from 1 April 2022.

There are no changes to the types of supply covered by the reduced rate which are as listed in the initial guidance from July 2020:

·       food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs

·       hot takeaway food and hot takeaway non-alcoholic beverages

·       sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities

·       admissions to the following attractions that are not already eligible for the cultural VAT exemption such as:

·       theatres

·       circuses

·       fairs

·       amusement parks

·       concerts

·       museums

·       zoos

·       cinemas

·       exhibitions

·       similar cultural events and facilities

Normal tax points apply here with the rate of VAT being based on the earlier of the invoice date or payment date where these are earlier than the time of supply. It is therefore worthwhile businesses who can apply the reduced rate having a push and trying to get people to book and pay in advance before the end of September to make the most of the lower rate.

Apply for a Partial Exemption Special Method Online

The standard method of partial exemption is for recovery of VAT on overheads to be based on the proportion of VATable turnover to total turnover.

Where that does not give a true reflection of the use to which the expenditure is put, a business can apply to use a Partial Exemption Special Method (PESM) such as basing it on staff hours, headcount, floor space, number of transactions, etc.

Up until now, the application to use a PESM had to be submitted to HMRC by post. The systems have now been updated and taxpayers may apply online.

The same information will still be required but the application process should(!) be smoother.

VAT Liability of COVID Tests

The Guardian Newspaper reported in mid-August that businesses were unsure about the VAT liability of COVID tests with some charging VAT and some treating them as exempt.

This was followed up a few days later with an article from Neil Warren for Accounting Web explaining when the exemption would apply.

HMRC caught up on 23^rd August and issued a brief setting out their view of the rules.

Whilst there are VAT exemptions for medical testing, these only apply where the test is carried out by, or supervised by,  a registered medical professional. As such, a large number of COVID tests will not qualify and will be standard rated.

The HMRC Brief sets out the VAT treatment in common circumstances.

Update on Rank Claims

This relates to the VAT treatment of certain gaming machine income from 6 December 2005 to 31 January 2013. HMRC had argued that it was standard rated but the taxpayer has won their argument that the income should have been exempt from VAT. 

HMRC have issued a brief saying that they will not be appealing the outcome and valid claims will now be paid.

Only existing claims, made at the right time, and stood behind the Rank case will be accepted.

Thank you for taking the time to read this VATwatch round-up.