VAT challenges for Eat Out to Help Out restaurateurs

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More than 72,000 restaurants have signed-up to the Government’s Eat Out to Help Out scheme, yet many questions remain around the treatment of VAT, as Ruth Corkin, our VAT Director and a consultee on HMRC’s Eat Out to Help Out advisory panel explains.

The Eat Out to Help Out scheme is, from a VAT perspective complex, with HMRC wanting its administration and policing to be as simple as possible. And the responsibility for that policing rests with restaurant operators who will be required to demonstrate compliance with the regulations when making claims. 

Eat Out to Help Out is considered by HMRC as ‘third party consideration’, which means VAT is chargeable on the whole meal and not the discounted parts. This is different to the treatment of traditional gift vouchers and that may cause some restaurant operators problems at the till.

Many operators’ till systems are set up to process discounts by the operator showing VAT charged on the discounted price. Eat Out to Help Out requires operators to charge VAT at the non-discounted rate. Whilst only the most eagle-eyed diners may notice this technicality, it may mean operators overpay or underpay VAT. Indeed, some pubs and restaurants have decided not to participate because changing the till system is too complicated and costly for them.

Restaurant operators will know that the scheme is not open to take-away meals, but questions remain over when diners having booked to eat in a restaurant change their mind and decide to take the food away. It is understood that HMRC will allow the Eat Out to Help Out discount to apply.

A more challenging issue for operators is when diners choose to pay for each course separately. Whilst perhaps not commonplace in most restaurants, it is a real issue for Spanish tapas restaurant operators. It is not unusual for diners to order tapas and drinks paying as they go.

HMRC has confirmed that the Eat Out to Help Out discount will apply to multiple meals ordered and payed for in one sitting. This means that diners in all restaurants could, in theory, pay for each course – starter, main and desert – separately and qualify for the Out to Help Out discount.

But there is a rub: whilst diners can request this, restaurants cannot promote this. Operators are rightly worried that the scheme is open to abuse and that they will be held liable.

Restaurant operators can also face challenges when diners choose to split or share a bill – should VAT be charged on headcounts or the number of main meals?  If the till system doesn’t capture the number of heads or the front of house staff don’t record this information, how is a restaurateur to determine how many heads to claim for from HMRC? What if some members of the party are over the £10 cap and some under?

What happens if a diner doesn’t understand the message and will only pay 50% of the bill regardless of the amount that the Government contributes? This could leave a shortfall for the restaurant, which it has to treat as a bad debt for VAT and make a claim for that after 6 months (according to HMRC). Outlets are already reporting that this is an issue and diners are confused.

Restaurant operators are rightly worried that the scheme is open to abuse and that they will be held responsible. The position is further confused by the fact that guidance on VAT is not easily available.

Operators are advised to keep detailed records that include the number of diners and meals provided and seek advice from their accountants. Should you require any assistance please get in contact with Ruth Corkin on ruth.corkin@hhllp.co.uk or 03300243200 and she will be happy to help.

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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