17th July 2020

Temporary reduction in VAT and how to handle this in your accounting software

Further to the changes announced in last week’s Summer Statement, HMRC have released details in relation to the temporary reduction in VAT, which comes into force tomorrow. We are have summarised these changes for you below and included guidance on how to apply the new VAT rate in Xero, QuickBooks and Sage.
Temporary reduction in the rate of VAT for hospitality, attractions and holiday accommodation sectors:

  • These VAT Changes will be effective from 15th July 2020 to 12th January 2021.

  • The VAT Rate will be reduced from 20% to 5% during this period.

  • Flat Rate Scheme – certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT.

  • This will affect the following sectors:

  1. Hot and cold food and non-alcoholic beverages sold for on-premises consumption i.e. in restaurants, cafes or pubs.

  2. Hot takeaway food and non-alcoholic beverages taken off premises.

  3. Sleeping Accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents and associated facilities.

  4. Admissions to the following attractions which are not already eligible for the cultural VAT exemption: Theatres, Circuses, Fairs, Amusement Parks, Concerts, Museums, Zoos, Cinemas, Exhibitions, Similar cultural events or facilities. Where admission to these attractions is covered by the existing cultural exemption, the exemption will take precedence.

Further details can be found following the link:
Cloud software provider, Xero, have issued guidance in relation to applying the new VAT rate within Xero:

  • For most Xero users the reduced 5% VAT Reduced Rate is already available in Xero.  All you need to do is to select the appropriate VAT Rate for affected suppliers as instructed by HMRC from 15th July to 12th January 2021.

  • If you prefer to identify the new Tax Rate you can go to the Accounting Tab and then select Tax Rate at the bottom of the Tab. 

  • Then select New Tax Rate Add your new description and the 5% VAT and Save.

Similarly QuickBooks have issued the following guidance:

If you are not already able to select the 5% VAT Rate when creating Sales or Purchase Invoices you need to do the following:-

  • Go to your Taxes Tab, then Select VAT

  • You will see a box that says  EDIT VAT, please click on this

  • There will be a drop down box select EDIT RATES

  • You should then be able to see a 5% Reduced Rate Please switch this to the on position.

  • If you are not able to see the 5% Rate please click on ADD TAX RATE box

  • Then Add the 5% Tax Rate for Sales & Purchases and save at the bottom of the screen.

There are no software updates required for Sage. For information on how to deal with the VAT rate changes in Sage please follow the guidance on the accountant and bookkeeper VAT support hub.

Our team is on hand, as always, should you have any further queries or need any assistance with your software.