Much welcomed by the hospitality and leisure sectors, the Government have unveiled a reduction in VAT from 20 per cent to five per cent for select services.
Running from 25 June to 1 September, the scheme is funded with the money saved by closing a tax loophole that benefited oil and gas companies.
A welcome sign on the surface may be hiding a growing compliance risk that could cause problems if businesses are not careful.
Different services, different rules
Depending on what you sell, the VAT rate cut will work differently.
Admission tickets to amusement parks, water parks, zoos, museums, soft play and similar venues qualify, as do children’s and family tickets to cinemas, theatres and concerts. However, pay-per-ride attractions do not.
Children’s meals will qualify, but only when they are specifically marketed as such from a dedicated children’s menu.
Small portions aimed at adults do not count, even if it is the same amount of food as would be served to a child.
Discounted adult meals and takeaways are exempt, as are season tickets and annual passes.
This will mean most bills will feature two different VAT rates applied for different parts of the same transaction, unless children are going unchaperoned to restaurants en masse this summer.
This will need to be handled effectively, so tills need updating and staff need training before it takes effect.
That training must be swiftly forgotten once it reverts on 1 September.
Who pockets the cash?
There is no strict requirement for businesses to pass savings onto customers.
However, the Government is urging businesses to do this and the Competition and Markets Authority has been given new anti-profiteering powers to prevent unethical activity.
Many businesses will take the opportunity to rebuild margins and reinvest cash to offset the increasing strain of operational costs.
This could undermine the spirit of the scheme if the Government convinces the public that they will see lower prices this summer.
More for mince pies than blue skies
There is a concern that this scheme is ill-timed.
The businesses affected by it are generally those that would see a significant increase in income over the summer anyway.
It may be more effective to offer support for businesses that are more likely to struggle, or offer relief during the quieter autumn and winter months.
Regardless, any support for the sector is welcome and our expert team are on hand to help you make the most of it while staying compliant.
Get in touch with our team to take the stress out of managing the changing VAT rates this summer.
