Are you overlooking a golden opportunity? Many hospitality businesses do not realise that they may have inadvertently overpaid VAT during the tumultuous period of the pandemic, after the reduced rate was introduced in 2020. There is still time to recover these funds, but the window of opportunity is starting to close. Hard-hit businesses still navigating the aftermath of the pandemic are urged to revisit their VAT records, ensuring they don’t miss out on potential refunds. If you are a hotel or holiday accommodation business that took deposits prior to the reduced rate period, or a hospitality business that may have misunderstood the applications – now is the time to look back at your records.
Sarah Barron, Senior VAT Manager, sheds light on the chance to recover funds in this article, which explores the intricacies of the reduced rate application, shedding light on disputes, exceptions, and the importance of accurate documentation. With the clock ticking towards the deadline, hospitality businesses have a limited time to seize this opportunity and maximise their financial compensation.
Back in July 2020 at the height of the global pandemic, the UK Government introduced a temporary reduced VAT rate of 5% to support the badly impacted hospitality sector. The reduced rate was applicable to meals both in restaurants and for takeaway, holiday accommodation and admission to attractions, such as theatres, amusement parks and cultural events.
The reduced rate of 5% was applicable to relevant sales between mid July 2020 and 30th September 2021. Thereafter the rate went back up, first to 12.5% until the end of March 2022 and then back up to the standard rate of 20%.
Revisiting VAT records to claim a refund
Businesses already dealing with the difficulties thrown up by the pandemic, may not have taken advantage of the temporary reduced rate at the time, but can now revisit their VAT records to claim a refund if they have overpaid their returns.
VAT returns can only be amended up until the end of four years from their due filing date, so the earliest affected periods will start to fall out of time to amend in July 2024. Given this, hospitality businesses should ensure they take the opportunity now to check whether they may be entitled to a repayment.
Businesses which may have a claim, include those who didn’t realise that the temporary reduced rate was applicable to them. The definition of ‘attractions’ was very loosely given, and the guidance provided was scant. This has resulted in a number of disputes with HMRC about who should be allowed to get a repayment. Cases which have been taken to tribunal already about the applicability to events and attractions, include a junior driving experience business, which lost on the basis that it was not admission to an attraction. Other businesses which have successfully applied the reduced rate include Christmas fairs and outdoor cinemas.
Businesses may not have correctly applied the rules in respect of advance payments or deposits. If a deposit was taken before the reduced rate was brought in, they are permitted to apply the reduced rate if the actual supply, being the hotel stay, meal or event, took place when the reduced rate was applicable. Where records are available to show that an advance payment was received and accounted for at 20% but the stay happened when the reduced rate was applicable, then a claim may be appropriate.
Are there any exceptions?
There are exceptions to the application of the reduced rate. Whilst meals, either on premises or for take away are included, alcoholic drinks remain at the standard rate of 20% and should be removed from any claim amounts. In respect of takeaway meals, only hot takeaway drinks qualify, not cold drinks.
Claims should be made to HMRC by submitting an error correction notification. This gives HMRC the opportunity to scrutinise the basis of the claim and ensure full disclosure can be made. An attempt to carelessly claim too much VAT could give rise to unwanted questions and the potential for penalties. If in doubt of the validity of claims, seeking advice from a suitably qualified professional is advisable, to ensure businesses optimise their position whilst remaining compliant.
If you have any queries regarding the above, please get in contact with us via the form below: