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Deferral & Reduction of VAT

Latest Accountancy News – Deferral & Reduction of VAT & Furlough Scheme Updates discussed by Hayvenhursts Chartered Accountants

On the 20th March 2020 following the outbreak of COVID19 across the world the UK Chancellor announced a temporary deferral of VAT payments for 3 months, until 30th June 2020 for all UK businesses to help support them during the coronavirus pandemic. 

In Summary:

  • The reduction will benefit around 2 million VAT payers as well as delay £30 billion in taxes since it also includes pre-crisis trading. The VAT deferred payment will then be due at the end of the 2020/21 financial year
  • Any deferred UK VAT will be due in 2021. The VAT not paid during this time period will be due to be paid to HMRC by the end of the 2020/21 financial year, ending on 31 March 2021
  • No interest or penalties will be due on any deferred VAT payments
  • There are no allowances for businesses on special schemes, such as the annual VAT payment. This deferment does not apply to tax payers on the Mini One-Stop-Shop VAT payer. HMRC will continue to process VAT reclaims and refunds as normal during this time
  • VAT returns must still be filed on time with new MTD rules
  • There is no special application procedure; it is an automatic measure
  • Foreign businesses with UK VAT registration are included
  • Foreign (non-resident) UK VAT registered businesses are included in the scheme
  • Any businesses which defer paying their VAT liabilities during this period, the liability must be paid to HMRC on or before 31 March 2021. HMRC will issue further guidance on how to repay the deferred VAT
  • Businesses who pay their VAT via direct debit should contact their bank to cancel it before the payment is due

HMRC released its guidance on the VAT Deferral Scheme which can be found here:

Further to the VAT deferral scheme, it was announced the temporary reduction for hospitality business’s VAT payments. HMRC issued guidance on the temporary reduced rate of 5% VAT which will be available from 15th July 2020 to 12th January 2021 to support hospitality sectors including; holiday accommodation and attraction sectors in the UK. 

The VAT reduction applies to certain supplies of hospitality, hotel and holiday accommodation and admission to certain attractions. 

What does the temporary 5% reduced rate of VAT will apply to?

  • food and non-alcoholic beverages sold for on-premises consumption (restaurants, cafes and pubs)
  • hot takeaway food
  • non-alcoholic, hot takeaway beverages
  • sleeping accommodation in hotels or similar businesses
  • holiday accommodation; and pitch fees for caravans and tents, as well as associated facilities

The 5% reduced rate also apply to admissions to the following attractions that are not eligible for the cultural VAT exemption:

  • theatres
  • circuses
  • fairs
  • amusement parks
  • concerts
  • museums
  • zoos
  • cinemas
  • Exhibitions and similar cultural events and facilities

Where admission to attractions is covered by the existing cultural exemption, the cultural exemption will take precedence.

The reduction of VAT rules are complex with varying rules applicable and as a result HMRC has updated its VAT notices to provide more detailed guidance on the application of the change in particular areas and sectors. Hayvenhurst Chartered Accountants are experts in this area and can support you to understand the varying reductions and deferrals, ensuring your business makes the most of the revised VAT options available.

What is the Eat Out to Help Out Scheme?

The Eat Out to Help Out Scheme offered by the government gives people a discount of up to 50% when eating or drinking non-alcoholic drinks in a participating restaurant or food establishment. Food and soft drinks will have a 50% reduction on their full prices, the restaurant will deduct the money from the final bill and will then claim it back from the government.

The VAT payable by the business will be based on the full cost of the customer’s bill. This is on the basis that the ‘Eat Out to Help Out’ scheme is a form of payment towards the meal and the value of the meal is unchanged. Any payments received by the business will be taxable on the same basis.

When does the reduced VAT rate take effect?

The temporary reduced VAT rate for the hospitality sector comes into effect as of the 15th July 2020 and ends on 12th January 2021. Any business which qualifies for the 5% reduction will then return to the current 100% VAT payable at 20%.

What does the reduced VAT rate cover in the catering industry?

The reduced VAT covers the retail supply of:

  • Food 
  • Non-alcoholic drinks which are eaten in
  • Hot takeaway food
  • Hot takeaway drinks

Can sandwiches or cold food take-aways be included in the reduced VAT category?

No, cold takeaway food continues to be subject to 20% VAT or 0% VAT under existing rules.

What type of establishments and businesses can apply the reduced rate of VAT?

The reduced rate of VAT can be applied to the supply’s made to restaurants, pubs, cafes, and similar establishments.

Does the reduced rate VAT apply to my take away business?

Hot takeaway food and non-alcoholic hot drinks are eligible for the 5% reduction. The HMRC’s published guidance on this area is not completely clear but at Hayvenhursts we can help your business understand your VAT reduction rights.

Do I have to pass the VAT reduced rate onto my customers?

This is completely your decision and will depend on your business financials if you are able to amend your pricing to incorporate the reduction or if your business itself will benefit. We understand that if you are an independent business this will be harder for you compared to larger scale businesses and chains so we can help you understand what you are able to do financially in the short and long term.

We also understand that these changes will impact independent businesses far more than larger scale chain businesses as consumer pressure will play a part in your decision making. You should carefully review your Terms & Conditions as some state that their prices are VAT inclusive. If your T&Cs state your prices include VAT then as a business you can decide to retain the difference in the VAT rate and not pass them onto your customers.

How will I calculate the correct VAT as we offer meal deals e.g a single price for a meal and an alcoholic drink?

The single price you advertise and sell the meal deal for needs to be calculated and proportioned between the reduced 5% VAT rate for the food and the full 20% for the alcoholic drink. 

Does the reduction of VAT apply to suppliers of food and drinks to hospitality sectors?

Unfortunately, no. The reduced rate only applies to the retail end of the food and drink supply industry. Wholesale suppliers of food and drink will have the existing VAT rate to pay when it is due.

I have a wedding venue, should I be offering a VAT reduction to my customers?

HMRC have advised that wedding packages remain standard prices when there is one supplier. 

If, however, you are charging for your venue and service and the catering charges are separate then this part can be subject to the reduced VAT. 

Does the VAT reduction include self-catering holiday accommodation lets? 

Yes, the temporary reduced VAT rate applies to self-catering holiday accommodation if the owner decides to pass these onto their customers.

Does the VAT reduction include caravan and camping pitch fees?

Yes, the VAT reduction includes caravan and camping pitch fees if the owner decides to pass these onto their customers.

Does the VAT reduction include seasonal caravan pitches and static caravan annual payments?

Yes, if you pay annually for your seasonal caravan pitch or fees for your static caravan then the VAT reduction can apply if the owner decides to pass these onto you. This will be difficult to calculate if you pay for a season (e.g. March to November) as there should be a proportion paid back or given as credit against next year’s fees if you are returning. Hayvenhursts Accountancy can help you with these calculations to ensure they are fair and reasonable if you make a commercial decision to offer it back to your customers.

If I offer a conference room for hire does the reduced VAT rate apply?

If you are hiring a room for a meeting with no catering for food or drinks then there is no reduction, however, if you are providing catering and this is invoiced separately then this can include the reduced VAT rate.

What should I do if I have a business that falls into one of the hospitality sectors?

If you have a business that falls under one of the categories below:

  • food and non-alcoholic beverages sold for on-premises consumption (restaurants, cafes and pubs)
  • hot takeaway food
  • non-alcoholic, hot takeaway beverages
  • sleeping accommodation in hotels or similar businesses
  • holiday accommodation; and pitch fees for caravans and tents, as well as associated facilities

The 5% reduced rate also apply to admissions to the following attractions that are not eligible for the cultural VAT exemption:

  • theatres
  • circuses
  • fairs
  • amusement parks
  • concerts
  • museums
  • zoos
  • cinemas
  • Exhibitions and similar cultural events and facilities

Where admission to attractions is covered by the existing cultural exemption, the cultural exemption will take precedence.

Contact us at Hayvenhursts Accountancy Services and we can help you with all of your VAT and financial queries during this time. Our team of accountants are experts in all areas of business and have an excellent understanding of all of the VAT changes which have been made in the UK.

Furlough Phase Changes

Phase 1 – This phase is no longer applicable. 

Phase 2

From 1st July 2020, employers in the UK will have the ability to bring their employees back to work on a full or part-time basis. Employers will pay their employees for the days or hours that they work and the Government will pay the remainder of their salary up to 80%, or up to the capped rate of £2,500. Employers can only claim for a minimum period of a week.

Deferral & Reduction of VAT & Furlough discussed by Hayvenhursts Chartered Accountants

Employees must have been in the Phase 1 scheme as of 30th June 2020 to be eligible, meaning an employee must have been entered into the Phase 1 scheme before 10th June 2020. This allows for the 3 week qualification period before furlough can be ended, or amended. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30th June 2020. Employers will have until 31 July to make any claims in respect of the period up to 30th June 2020.

Phase 3 & Onwards

The UK Government Furlough Scheme will be phased out gradually between now and the 31st October 2020 to support businesses as they reopen and get back on their feet:

  • 1st August 2020 – employers will pay all employer national insurance and pension costs (including the furloughed days)
  • 1st September 2020 – in addition to the above, employers will also contribute to 10% of salaries for the furlough days. This means the Government will pay 70% for the furlough days which is capped at £2,187.50
  • 1st October 2020 – in addition to the above, employers will now contribute to 20% of salaries for furlough days. This means the Government will pay 60% for the furlough days which is capped at £1,875
  • The furlough scheme will close on 31st October 2020 

If you have any questions or concerns about furloughing any of your staff then contact us at Hayvenhursts and one of our experts can answer any questions you may have.

Forward thinking and planning for your business will be crucial to you operating during the COVID19 Pandemic. Businesses need to think on their feet and adapt their services, therefore, taking time away to evaluate where you are, where you need to be, what you can change and what you can do in this changing world is absolutely vital and we can support you with this.

About Hayvenhurst Accountancy Services

At Hayvenhursts we are experts in all types of accountancy services and can help you and your business at this difficult time.

Hayvenhursts offers all the accountancy service you’d expect from a well-established five-partner firm. But with an important difference; most accountancy practices offer standardised services, in other words, your needs are made to fit in with the firm’s methods of operation which is great for the accountant, but not always so good for you as the client.

At Hayvenhurst we don’t just offer a standard accountancy service, we get to know you and your business and will work alongside you to ensure your business has all the accountancy and expert business services that you need now and in the future.

Our highly trained, experienced and expert team members will understand your business sector, you and your needs at this time which results in us providing a service which is individual to you. We will work alongside you to identify savings, tax breaks, improved cash flow and business efficiency through our defined and relevant accountancy and business services, establishing savings and opportunities which will improve your business’s short and long term financials.

From our offices in Cardiff, We offer a personal and professional service focused on the needs of each individual customer, business or family across South Wales and the whole of the UK.

Our service and reputation is built on our ability to understand your business plans for the short, medium and long term to ensure we are by your side and can support you when you need us. We have the expertise and experience to refine and distil key business decisions and possible outcomes and are always thinking, advising and refining your tax position as needed.

We take the time to work alongside you to understand your business, its needs, your needs and your business plans, and we offer the personal services of a local accountant with the infrastructure and experience of a large national accountancy practice.

Choosing an accountant has never been so important and it is an important and critical decision for you and your business. You should take the time to find one which suits your needs, one you feel comfortable with, one you can trust and an accountant whose fees are fair and competitive.

We are proud that you can call us whenever you need accountancy help or advice without being charged every time you pick up the phone to us and this is a commitment we make to our clients. We want you to feel comfortable to contact us whenever you need to and for whatever you want. You will always receive good, honest, sound and understandable advice, and we will work with you in the way that suits you; in person, on the phone or online.

Hayvenhursts Accountancy Services

  • Accounts Preparation
  • Audits
  • Bank Accounts
  • Book-keeping
  • Book-keeping Health Check
  • Business Growth
  • Business Health Check
  • Business Plans
  • Business Valuations
  • Commercial Property
  • Company Formation
  • Company Secretarial
  • Contractors and IR35
  • Furlough Advice
  • Inheritance Tax Planning
  • Management Accounts & Information
  • Management Systems
  • PAYE Health Check
  • Payroll & PAYE Returns
  • Personal Tax
  • Property Tax
  • Raising Finance
  • Reduce your SRA Audit Costs
  • Registered Office
  • Strategic Planning
  • Tax Disputes
  • Tax Enquiries & investigations
  • Tax Planning
  • Tax Returns & Self-Assessment
  • Trusts
  • VAT Deferrals
  • VAT Temporary Reductions
  • VAT Health Check
  • VAT Planning & Disputes
  • VAT Registration
  • VAT Returns

Contact us today and find out how our VAT experts can help you identify the best way forward for your business and how we can help to futureproof your business.

Hayvenhurst Accountants COVID-19 STATEMENT

We have been carefully observing the development of the spread, Government advice and information and media surrounding the spread of the Covid-19 virus.

To protect our staff, clients and other contacts we would like to issue the following advice;

We would like to reassure our clients that it is business as usual at Haybenhursts offices. Our staff currently continue to work as normal. We are preparing for all eventualities and keeping the situation under constant review. We have plans in place to introduce different working arrangements should the need arise.

The wellbeing of our staff and clients remains our priority and we have put in place reasonable and proportionate arrangements to protect our colleagues and clients. These include:-

We are committed to an evidence-led and common-sense approach to containing the coronavirus outbreak and mitigating its impact on employees, customers and our wider business operations.  

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