VAT Rate cut to 5% for Hospitality

Date: 15th July 2020  |  Author: Sean Toomer

As part of measures to get the economy moving, our lord and saviour Rishi dropped the VAT Rate from 20% to 5% for the hospitality and accommodation industry as of today until January 2021. However, as with most things VAT, it’s not as simple as it sounds!

What’s changing?

All sales of food and drink that are eaten at the establishment will be subject to the new rate of 5%. Takeaway sales of hot food and drink will also be subject to 5%. The full guidance can be found here for food and here for takeaway.

What’s not changing?

VAT on alcohol remains at 20%, so if you were hoping for a cheaper pint, you’ll be disappointed I’m afraid.

Do I need to reduce my prices?

No. There is no requirement to reduce your prices you charge to your customers, although some larger chains are. The purpose of this cut is to help the struggling industry, so whether this means customers are happy to buy more because it’s cheaper, or businesses have pay a bit less in their VAT bill, either way, it’s a desperately needed helping hand.

What if I’m on the Flat Rate Scheme?

The relevant Flat Rate Scheme percentages have also been updated and released – these have reduced slightly to be in-line with the drop to 5%. These can be found here.

How do I update this on my accounts?

If you use an EPOS system, it should be straight forward – just amend the VAT Rate on the relevant products. Better EPOS systems usually allow this to be automatic too. You’ll also need to update your Xero to reflect this. In order to do this, there’s a handy guide here. Don’t forget, you can also update your Xero Tax Rates for a number of accounts at once, so this should take minutes. If you’re unsure, ask the experts (that’s us by the way).

Any questions on the above, get in touch.

Stay Safe,


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