Three cheers for The Chancellor

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July saw the much heralded reduction in VAT. Despite the likes of LBC predicting a widespread reduction or scrapping of VAT, it was restricted to certain sectors. Indeed, most of the ones that I argued should be allowed to operate the reduced rate in my last blog.

However, this gift is only temporary and is already causing me and the HH VAT team headaches. A lot of businesses are not passing this saving onto the consumer. Now, on one level, that’s not too bad if the business uses the VAT reduction to service its costs and keep people in employment. However, as a friend of mine pointed out, when France last tried it, the cost to the Government was €4bn and per working person was a fortune in “help to employees).

The rate reduction straddles VAT periods for most businesses. The most popular VAT return stagger is the calendar quarter one. For two weeks, businesses will have to account for 20% VAT and then 5% for the remaining eleven weeks. Add the complication of a change in rate and the flat rate scheme, deciding rate applies to deposits paid for services to be rendered after the reduction date, what needs to be charged at what rate and accounting software which can be a little binary at the best of times and I can see that the July, August and September VAT returns are going to be a trial, to say the least.

On the G & T, what is the main supply…the tonic or the gin…what rate applies? On cost, probably the gin (although as someone who does drink tonic on its own, it’s a close thing in some places), on volume the tonic (if all added to the gin).  What if I buy the gin and then the tonic separately? (Some gins are lovely neat…I believe!) Such thoughts keep me awake at night

Then we can add the “Eat Out to Help Out” (or “EOHO” as HMRC refer to it) scheme to the melting pot! It’s a nice gesture of our Government to fund a “discount” on our meals out in August, but it does have a few stings in the tail:

  • The guidance states that the £10 per head subsidy from the Government is third party consideration and VAT is due on it;
  • The meal value is for eat in meals only.
  • It does not cover alcoholic drinks and service charges;
  • If the 50% discount is more than the £10 per head subsidy, the customer has to pay the difference;

So when everyone has had a few celebratory, post–lock down gin and tonics and the bill arrives, how many will remember that the alcohol is excluded, as is the service charge and, by the way, the Government is only paying a maximum of £10 per head for the food and non-alcoholic drinks?

If anyone has been present when a group splits a bill when they have a discount voucher from Groupon (other discount vouchers available), can probably visualise what will happen. How many waiting staff, restaurant owners and bookkeepers will need time off for stress after that, I wonder? Hopefully, the time off will be after the VAT rates that apply have been calculated and no…team VAT you can’t take the first week in October off!

Cheers everyone…off to down a rather large G & T

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Ruth Corkin

Ruth has been involved with VAT for over 30 years. She started her VAT career as a Customs and Excise Officer in Essex and then moved into consultancy with a variety of well-known accountancy firms. She is well known in the VAT world and is the proud author of many articles and technical works.

Contact Ruth at ruth.corkin@hhllp.co.uk or on 01908 713 860