The Eat Out to Help Out scheme and temporary reduced rate of VAT FAQs
Giving his Summer Statement on 8 July, the chancellor announced a headline measure of VAT on food, accommodation and attractions being cut to just 5%.
He also revealed a new scheme: Eat Out to Help Out, which opened for registrations on 13 July. This scheme aims to encourage consumers to visit restaurants with the offer of a 50% discount for diners, capped at £10 per person, on Monday to Wednesday throughout August 2020.
Whilst this is welcome news for the hospitality, leisure and tourism sector, businesses now face the challenge of ensuring they comply with the regulations and conditions of these measures. We have answered some frequently asked questions below which we hope will help you to successfully make use of the support on offer.
1. How do I record the Eat Out to Help Out scheme income received?
Income received via the scheme will be recorded as outside the scope of VAT because all the VAT has been declared at point of sale to the customer, on the full sale price.
2. Should I adjust my prices?
For example, Fish and Chips is £5 plus VAT at 20% (£6 gross), so do I make the sale £5 plus VAT at 5% £5.25, or is it still £6 with a reduced VAT element?
It is completely up to you whether you choose to pass the VAT benefit on to your customers or not. Whether the price you charge is still £6 or £5.25, this will still include 5% VAT to pay over to HM Revenue & Customs (HMRC).
3. I use the Flat Rate Scheme, has this changed?
Catering services including restaurants and takeaways is 4.5%, hotel or accommodation is 0% and pubs is 1%. This is a temporary change from 15 July 2020 to 12 January 2021, you will need to revert back to the previous FRS rate from this date.
4. How will HMRC police this?
As of 27 July 2020, HMRC have not issued guidance on this. It is up to you to ensure that you are accounting for VAT and applying for money back from the scheme correctly.
Software and calculations
5. How should I record items of a sale to ensure the 5% VAT rate and the Eat Out to Help Out scheme discount are accounted for correctly?
You will need to use a cost-based calculation to work out the value of the meal compared with the alcohol. This will involve calculating the total cost of the standard-rated supply, which is the alcohol, compared to the total cost. This percentage should then be applied to the total selling price to work out the 20% VAT on the alcohol and the 5% VAT on the meal. The Eat Out to Help Out scheme discount can then be applied to the meal value. Click here to download our sales record template.
6. What is the VAT fraction for working out VAT at 5%?
The VAT fraction to use for calculations is 1/21.
7. The Eat Out to Help Out scheme income is taxable, so do I account for VAT on the meal total in full at 5% as part of my Making Tax Digital (MTD) daily takings, and then the scheme income when it comes through as 5% too?
If you do this then you will be paying too much VAT. With the scheme, you can submit claims on a weekly basis and HMRC will pay the eligible claims within five working days. You account for VAT on the meal total in full at 5% and then, when the money from the scheme comes through, you can treat it as outside the scope of VAT.
8. What is my daily takings amount I need to enter under MTD? Is it just the amount the customer pays on the day?
Your daily takings amount is the full price charged for the food and drink, not the amount the customer pays on the day.
9. How does my bookkeeping software manage this? Do I need to make any changes?
It is possible to change the default VAT rates in most accounting software platforms. You can monitor reduced rate sales by setting up new codes should you wish to. If you are unsure how to make this change then we can support you with this. If you use an EPOS system you should be able to add a new VAT rate and your provider will be able to help you.
10. How do I deal with FRS changes in my bookkeeping system?
Most bookkeeping systems can provide a workaround. We can support you with this.
11. What should I do if someone orders non-alcoholic drinks to go with a meal but then they decide not to eat and have only paid 50%?
The 50% can still apply as non-alcoholic drinks are eligible for discount whether food is consumed or not.
12. What should I do if someone orders to eat in, but then ends up taking away the food and have only paid 50%?
HMRC have confirmed that the 50% can apply.
13. What should I do if my till does not have the functionality to have another VAT rate?
You will need to keep a separate record of 5% VAT rate items, 20% VAT rate items and the Eat Out to Help Out discounts (the amount you are going to claim through the scheme).
For example, if you predominately sell alcoholic drinks and a limited amount of snacks and bar meals, then you can manually record the daily value of the non-alcoholic drinks, meals and snacks to apply the 5% rate. Click here to download our sales record template.
14. My till doesn’t have the functionality to record takeaway and eat in sales separately for the Eat Out to Help Out scheme, what should I do?
You will need to keep a manual record to be able to make accurate claims under the scheme. Click here to download our sales record template.
15. I am offering a whole wedding package as one price (i.e. venue, catering and bar), is the catering element now at 5%? How is it best to split my supply? And can I claim £10 per head under the Eat Out to Help out scheme if the wedding is on a Monday, Tuesday or Wednesday in August 2020?
Where the wedding is offered as a package of services, so one single supply, then the whole charge is still at 20% VAT. The catering element for a wedding can only be at the 5% rate of VAT if the catering (food and non-alcoholic drinks) is delivered by a separate supply, including where in-house catering is a separate supply.
The supplier can decide if they want to pass on the VAT savings to the customer or not.
16. A social club/sports bar is not offering food, or is only offering bar snacks, so are non-alcoholic drinks and snacks consumed on the premises subject to VAT at 5% or 20%?
Where non-alcoholic drinks and snacks are consumed on the premises, the 5% VAT rate can be applied.
17. I sell alcohol free beer but some of these actually have an alcohol content of 0.05% or 0.5%, so are these then classed as alcoholic drinks?
Alcohol free beer is not classed as an alcoholic drink in this instance. If no excise duty is charged then drinks are treated, for VAT purposes, as soft drinks. Excise duty does not apply to beer, wine, cider or perry with an ABV of less than 1.2%.
If you have any questions or queries that have not been answered above, please contact your usual Duncan & Toplis adviser or submit an enquiry to our team here.