Temporary reduced-rate VAT on catering supplies

Liaison Financial

In the Budget speech on 8 July 2020, the Chancellor announced a number of measures to help the hospitality and tourist sectors in recovering from the economic impact of COVID-19. However, the measures detailed below apply to all sectors that make relevant supplies, including the NHS. VAT at the reduced rate of 5% will apply for the six months from 15 July 2020 to 12 January 2021 to income received from the following.

Catering
Supplies to hospital staff and visitors of:

• Hot and cold food for consumption on the premises on which they are supplied.
• Hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied. 5% VAT, therefore, applies to, for example, carbonated drinks, fruit juices, and bottled water, provided they are consumed within the confines of the catering outlet.
• Hot takeaway food for consumption off the premises on which they are supplied.
• Hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied (e.g. coffee and tea).

Confectionery items and alcoholic drinks remain standard-rated, no matter where they are consumed.

Take-away cold drinks such as carbonated drinks, fruit juices and water that are consumed away from canteen premises and that are not eligible for zero-rating (e.g. milk) remain standard-rated.

Action required
For NHS organisations that have contracted-out their catering functions, no action is required.

For in-house catering, where NHS organisations use their till systems to identify products and VAT liability at the point of sale, the tills will require re-programming to reflect the above changes and catering staff notified of the updates. Preferably, the tills should be programmed to take effect from 15 July 2020 to avoid paying too much VAT.

For those that use a method of apportionment to quantify the VAT due to HMRC on catering supplies, those methods should be reviewed to reflect the changes in VAT liability. If your Liaison Financial VAT advisor reviews your catering VAT calculation, the review will be undertaken on the anniversary of the last review.

Although it is not a legal requirement, NHS organisations may wish to adjust their retail prices to reflect the reduction in VAT, as there is likely to be an expectation from customers that the VAT saving is passed on to them.

Accommodation
The temporary 5% VAT rate applies to accommodation in hotels, hostels, boarding houses and similar establishments. The reduced VAT rate will therefore apply where the NHS is providing accommodation to staff and visitors that is currently liable to the standard-rate of VAT.  Because of the rules that apply to long-term accommodation, the impact will be as follows: 5% VAT will apply to hospital staff and visitor accommodation that is currently subject to 20% within the first 28-days. After 28-days any VAT that is due on non-accommodation and apportioned facilities charges will be at 5%.

Action required
You should review your staff and visitor accommodation VAT liability and make any changes necessary to reflect the temporary reduction in VAT from 15 July 2020.