The Chancellor of the Exchequer announced two pieces of legislation that will impact on providers of food. This includes outlets such as golf club houses. Both initiatives have their own issues as regarding administration of the rules and we have summarised them below.
Reduced rate of VAT
What qualifies for the reduced rate?
Any outlet providing food, including non-alcoholic beverages for consumption on and off the premises can apply the reduced rate of VAT at 5% on the takings from these supplies. The exception to this is for alcoholic beverages. Any “low alcohol” drink that is not subject to excise duty is classed as a soft drink (Excise duty is levied when the ABV goes over 1.2%) and also qualifies for the reduced rate.
Golf clubs, therefore, will have at least two rates of VAT to cope with and, possibly three if they already provide cold takeaway food.
Accounting for the reduced rate in the accounting records
There is no requirement to pass on the VAT rate reduction to their customers in the club house. However, clubs will need to adjust their accounting records to account for the VAT at the appropriate rate. This will potentially include the tills in the bar and function room areas, if the daily takings and VAT are calculated from the till rolls.
Till receipts requested by customers have to show the VAT paid at each rate, so thought will need to be given to achieving this.
However, some clubs may want to reduce prices to encourage spending and this will bring other challenges to the accounting records.
Supplies at the reduced rate are still taxable supplies. This means that, if prices stay the same for the supplies now qualifying for the reduced rate, the value of the taxable supplies will remain the same. However, if the value of the supply is reduced to encourage spending, the taxable proportion of the sales will decrease.
This then means that the recoverable percentage of the overhead VAT is calculated, it will reduce and this will mean a reduction in the VAT recoverable by the club overall.
This is the scheme that has been launched by the Government to encourage people to eat out and stimulate the economy. Businesses that provide food for “consumption at table”, have their own or shared dining facilities and are registered with their local authority as a food business before 7 July 2020 are eligible to register and join the scheme. Registration is via the Government Gateway.
Those registered for the scheme have to offer 50% off meals and non-alcoholic and low alcoholic (below 1.2% ABV) drinks Monday to Wednesday each week in August and then apply for a reimbursement from the Government of the 50% up to a maximum of £10 per head. The term “per head” includes children.
The 50% also does not include the service charge. HMRC have provided two worked examples in the guidance, one where the 50% discount is fully covered by the £10 per head and one where it is not! There is no mention of VAT in these examples, but it is mentioned in the registration guidance and we will cover this further down, as there are issues!
Participants can provide further discounts and the amount of the bill that is covered by the Government contribution is calculated after the additional promotions and discounts are applied.
- If the club offered a “happy hour” on non-alcoholic “mocktails”, the value of the free “mocktail” would need to be deducted from the total bill before applying the EOHO discount/£10 per head capped contribution.
- If the club offered “10% off for frontline workers” as an incentive, the value of the 10% discount would have to be deducted before applying the EOHO discount/£10 per head capped contribution
Advertising the scheme
The scheme is advertised as a “50% off” scheme, but there is an upper limit of £10 per head as mentioned above. (This equates to a meal of £20 per head excluding alcoholic drinks and service charges).
Terms and conditions will need to be very obvious to avoid customers disputing bills when they are expecting to only pay 50% of the bill!
It may be easier to have a set meal to the value of the meal before the discount e.g. set meals of up to £20 per head (“Chancellor’s specials”?!) in order to avoid this issue.
Government prepared promotional material is available here:
Calculating the amount of the bill covered by the discount
Example of applying the cap to a £60 bill
A group of four diners (2 adults and 2 children) spend £60, including £10 on alcoholic beverages. There is a 10% service charge bringing the pre-discount bill to £66.
|Bill before service charge and discount||£60.00|
|Amount spent on alcohol||£10.00|
|Amount that discount can be applied to||£50.00|
|Discount to customers (50% of 50)||£25.00|
|Bill after discount is applied||£41.00|
The total discount is £25, which is £6.25 per diner and is below the £10 per diner cap.
Example of applying the cap to a £100 bill
|Bill before service charge and discount||£100.00|
|Amount spent on alcohol||£10.00|
|Amount that discount can be applied to||£90.00|
|Uncapped discount to customers (50% of 90)||£45.00|
|Capped discount (£10 per diner)||£40.00|
|Bill after discount is applied||£70.00|
The uncapped discount is £45, which is £11.25 per diner and is above the £10 per diner cap. The discount is therefore capped at £40.
Link to the operational guidance (but no mention of VAT!)
Accounting for VAT
If no other promotion is available, the VAT amount is calculated on the full value of the meal before the application of the EOHO contribution. In the £60 example above, VAT would be due at 5% on the £50. This will be £50 X 1/21 = £2.38
VAT is then due at 20% on the total of the alcoholic drinks plus service charge (£16×1/6) =£2.66. Total VAT due is £5.04
Money received from customer is £41 (incl. VAT at all rates) plus £25 EOHO contribution (incl. VAT). Total £66 (incl. VAT)
In the £100 bill example above the VAT would be due at 5% on the £90. This will be £90 X 1/21 = £4.28.
VAT is then due at 20% on the total of the alcoholic drinks plus the service charge (£20 x1/6) = £3.33
Total VAT due is £7.61.
On the assumption that the customer pays the remaining £70 of the bill and the Government contribution is processed without problems, the club should receive the full £110 including VAT at the various rates.
However, if, for whatever reason, the customer refuses to pay £70 on the basis that they only expected to pay 50% of the food bill, there is a gap in the VAT funding because the customer will only pay £65 (£45 food +£10 alcohol +£10 service charge) and the Government £40. However VAT is still due on the full £110. We have queried this with HMRC and the policy team’s view is that the VAT is payable in full on the day that the meal is consumed and any the VAT on shortfall in the money received has to be claimed as bad debt relief after 6 months. That presents a few problems
- clubs will fund a VAT payment on these amounts for 6 months;
- What rate of VAT is recoverable under bad debt relief – presumably 5% if the deficit is deemed to relate to food
The deficit is even worse if the customer refuses to pay the alcohol and service charge as well because they are expecting 50% off the total bill!
The Government is pinning its hopes on the public fully understanding all of this when paying the bill and outlets being able to explain why it is not a straight “50% off the bill”!
Our VAT and Indirect Tax expert, Ruth Corkin and her team are here to help if you need it. Please get in touch on 0330 024 3300 or firstname.lastname@example.org and they’ll be happy to help.
This news item is written for general interest only and is not a substitute for consulting the relevant legislation or taking professional advice. The authors and the firm cannot accept any responsibility for loss arising from any person acting or refraining from acting on the basis of the material included herein.