VAT Alert - temporary reduced rate

Further to the previous VAT alert regarding the temporary reduced rate of VAT for hospitality, holiday accommodation and attractions, this is to clarify the position regarding prepayments and deposits for holiday accommodation supplied by hotels and similar venues, along with caravan parks and camp sites.

HMRC have advised that the reduced rate of VAT (5%) will apply to these supplies from 15 July 2020 until 12 January 2021.  Under special provisions and where the supply takes place in the window where the temporary cut applies, it may be possible to reduce the VAT charged to 5%. Under these special provisions, the basic tax point (date of supply) takes priority over the actual tax point (receipt of advance payment).

However, where the VAT cost has been borne by the customer, for example the price was advertised as £100 + VAT, then the reduced rate can still be applied but the customer will need to be issued a credit note and repaid the VAT difference under the unjust enrichment rules.  

These rules will be particularly important to businesses who provide holiday accommodation and have received payments in advance for holidays to take place during the temporary VAT reduction period.