Business Tax: COVID-19 and VAT

ICAS Lecturer Susan Harris takes us through some of the ways in which the COVID-19 pandemic has affected VAT, one of the areas covered by our TPS Business Tax course.

You might have seen a recent blog on the impact of COVID-19 on some of the areas of the TC Principles of Tax course. Well, some of the areas of our TPS course syllabus have also been affected – in particular, VAT.

Helping hospitality

From a VAT perspective you may be aware that the rate of VAT applicable for the hospitality industry has been reduced from standard rated 20% to reduced rated 5%. The reduction is temporary and came into force on 15 July 2020 and currently runs until 12 January 2021. The purpose of the reduction was to try and support the hospitality industry, which has been hard hit by lockdown and social-distancing measures being enforced.

If you are looking to book next summer’s holiday, and save on VAT, make sure you pay for the holiday before 12 January 2021. The VAT tax-point rules will advance the date of the supply of the holiday to the date of payment, resulting in a 5% VAT charge rather than 20%.

Cheaper reads

If you want to buy some holiday reading, or just a novel or two to get you through the winter, from 1 May 2020 the VAT on eBooks has been amended to zero rated. This initiative was intended to come into force on 1 December 2020, however, it was brought forward due to the volume of people being locked down at home and looking for ways to pass the time.

Zero-rated PPE

Another area where VAT was temporarily reduced to zero rated was on PPE. Initially, this measure was due to run from 1 May to 31 July 2020 but was subsequently extended to the end of October. The intent here was to make it easier for care homes, charities and businesses to obtain vital PPE equipment. It is worth noting that although the rules on PPE apply to the whole of the UK, the definition of PPE follows that of Public Health England.

VAT registered businesses with payments due between 20 March and 30 June 2020 were also given the opportunity to either pay as normal or to defer payment. The returns still required to be filed on time as normal, but payment could be delayed. This scheme did end as advised on 30 June 2020.

Cheaper eats

In the summer, the UK Government introduced the Eat Out to Help Out scheme. Businesses had to sign up to the scheme, which offered 50% discount to customers dining on Mondays to Wednesdays and ran from 3 to 31 August 2020. The scheme was capped at £10 per head, didn’t cover alcoholic drinks and didn’t apply to takeaway orders.

In the first instance, the business was required to pay VAT based on the full amount of the customer’s bill. It was then able to claim back the discount given on food and non-alcoholic drinks from HMRC. The claim had to be submitted by the taxpayer and could not be submitted via an agent, and the business had to retain records including:

• The number of diners who used the scheme, including children
• The total amount of discount issued
• The period of the claim.

The Eat Out scheme has now ended but as the UK progresses through the pandemic, we may see the introduction of similar schemes that have their own inherent tax implications.

There’s certainly no denying that, thanks to COVID-19, we are living through ‘interesting’ times, and they’re particularly interesting if you’re a CA Student with a need to know about VAT.