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The hospitality and leisure industries have been severely affected by the Coronavirus pandemic. To help businesses in these sectors to get back on their feet, a reduced rate of VAT of 5% rather than the standard rate of 20% will apply to certain supplies for a limited period, from 15 July 2020 to 12 January 2021.

Hospitality

Food and drink supplied for consumption in the premises, for example by a restaurant or a bar, and hot takeaway food and beverages are normally liable for VAT at the standard rate of 20%. During the support period, the 5% rate will apply instead to:

• hot and cold food for consumption on the premises on which they are supplied;
• hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied;
• hot takeaway food for consumption off the premises on which it is supplied;
• hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied.

Hotel and holiday accommodation

For businesses supplying hotel and holiday accommodation, the 5% rate VAT applies during the support period to:

• supplies of sleeping accommodation in a hotel or similar establishment;
• certain supplies of holiday accommodation;
• charge fees for caravan pitches and associated facilities;
• charge fees for tent pitches and camping facilities.

Meals provided to guests in long-term holiday accommodation (more than 28 days) will also benefit from the reduced rate, but the hire of motor caravans will not.

Admission to attractions

The reduced rate of 5% also applies during the support period in respect of admission to certain attractions which would normally be liable for VAT at the standard rate. However, if the admission fee is exempt from VAT, this will take precedence over the 5% charge and the admission charge will remain exempt.

The temporary reduction will apply to admissions to shows, theatre, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events where these are not included in the existing cultural exemption.

Impact on flat rate scheme

VAT registered businesses using the flat rate scheme should note that some of the flat rate percentages have been reduced to take account of the temporary reduction in the rate of VAT.

The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline to millions of employees and their employers during the Covid-19 pandemic. As at 19 July 2020, 9.5 million employees had been furloughed by 1.2 million employers, benefitting from support totalling £29.5 billion.

As with all good things, the CJRS must come to an end. The scheme is now is its second and final phase, which runs from 1 July 2020 to 31 October 2020. This phase provides a transition from Government support to employers once again meeting the costs of employing their employers. From 1 July 2020, furloughed employees can return to work on reduced hours under the flexible furlough rules, with employers paying the employees as usual for the hours that they work and claiming a grant under the CJRS for the remainder of their normal hours. Employees who were not furloughed for at least three consecutive weeks prior to 1 July 2020 are not eligible for a grant under the scheme from July onwards (unless the employee returns from statutory leave).

During the final phase of the scheme, employees will continue to receive 80% of their pay up to the equivalent of £2,500 a month – this is known as minimum furlough pay.

From 1 August 2020, the financial support provided under the scheme starts to reduce. For claim periods on or after 1 August 2020, employers cannot claim back the employer’s National Insurance and minimum pension contributions on grant payments but must instead meet these costs themselves. For September, employers can only claim 70/80^th of the employee’s minimum furlough pay; this reduces to 60/80^th for October. However, furloughed employees will continue to receive their minimum furlough pay, with the employer making up the shortfall.

Job Retention Bonus

When the scheme comes to an end, employers will need to assess their staffing requirements and decide whether they can bring furloughed employees back to work. The Government are keen that they do. To encourage employers to retain furloughed employees, they will pay a Job Retention Bonus of £1,000 for each furloughed employee who is employed continuously from the end of the CJRS until 31 January 2021. To qualify for the bonus, the employee’s earnings during this period must, on average, be at least equal to the lower earnings limit for Class 1 National Insurance purposes, set at £120 per week (£520 per month) for 2020/21. The Government will pay the bonuses from February 2021.

As far as the Coronavirus Job Retention Scheme is concerned, it is all change from 1 July 2020. From that date, employees can be flexibly furloughed allowing furloughed employees to return to work part time and be furloughed for their usual hours that they do not work. The employer pays the employee for the hours that they work and claims a furlough grant for the furloughed hours. The employee continues to receive ‘minimum furlough pay’ for the furloughed hours, equal to 80% of their pay up to the maximum amount equivalent to £2,500 a month.

Conditions

There are, however, conditions. From 1 July, a grant claim can only be made if the employee was previously furloughed for at least three consecutive weeks before 1 March 2020 and 30 June 2020. This means that a grant cannot be claimed for an employee who has been working reduced hours throughout (although a furloughed employee can be brought back on the same reduced hours and a grant claimed).

Employers to start meeting costs

Although employees will continue to receive 80% of their wages based for their furlough hours up to the maximum amount (equivalent to £2,500 per month), the employer will start to meet some of the costs from 1 August. Prior to that date, employers can claim the employer’s National Insurance due on the grant amount and also the associated minimum pension contributions due under auto-enrolment. However, for pay periods starting on or after 1 August 2020, employers must meet this cost.

The amount that the employer can claim for furloughed hours is reduced to 70% of the employee’s pay (up to maximum equivalent to £2,187.50 per month). For October, this reduces to 60% of the employee’s pay (up to a maximum equivalent to £1,875 per month). The employer must top up the grant so that the employee receives 80% of their wages up to the maximum amount.

The scheme comes to an end on 31 October 2020.

Doing the sums

Flexible furloughing introduces some more complex calculations; although help is available on how to do the sums on the Gov.uk website.

The starting point is to work out the employee’s usual hours, furloughed hours and minimum furlough pay. Guidance on the Gov.uk website explains how to do this. From 1 July onwards, claims must start and end in the same calendar month. If the pay period spans two months, it must be split into two separate claims. This is because the amount that can be claimed is different each month from July onwards.

The furlough hours are the usual hours less the hours that the employee has worked in the month.

The minimum furlough pay is the lesser of 80% of the pay for the pay period and the maximum amount, divided by the employee’s usual hours and multiplied by the furlough hours.