Covid-19 - Chancellor's Economic Update ... the practicalities businesses face

Further to our information released in relation to the Chancellor's Economic Update, we wanted to highlight a few of the practicalities that businesses face on the implementation of the temporary reduced VAT rating in the hospitality sector.

The announcement was indeed great news for businesses within this sector who have perhaps been the worst hit in the current crisis.  The reduced rating will allow businesses to increase profit margins, pass savings to customers or perhaps a mixture of the two.

Businesses must now consider the impact of these changes on their trade and select the appropriate route.

Whilst the changes are very welcome, businesses must now adapt to implementing these new VAT rates into their day to day trading.

Many businesses such as pubs, restaurants and the like will have usually only had standard rates sales in the past, and therefore there would usually be no issue calculating the VAT collected on these.

From 15 July however, these businesses are likely to have mixed rate sales.  For example, the cost of a meal and a coffee in a restaurant would now apply the 5% reduced rate of VAT, however, a bottle of wine would continue to be standard rated.

It is therefore important that businesses review their current system for recording VAT, to ensure that this is adequate for identifying the separate supplies which fall within each rate.

This may mean that businesses with a simple point of sale system such as a till, may need to have this re-programmed to ensure that these sales are treated correctly.

The Flat Rate Scheme

If you are a small business and use the Flat Rate Scheme to simplify your VAT calculations, you should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT.

More information can be found at https://www.gov.uk/vat-flat-rate-scheme

Should you have any queries regarding this, or any other matters, please contact a member of our team.

Take care, stay safe.

#TeamWaltons