The summer holidays are well and truly here. For parents, that means 6 weeks of finding things to do, places to go and ways to keep the kids entertained without completely draining the bank account at the same time. It’s a struggle that millions go through every year, but this year there’s a little bit of help available. The government have temporarily reduced VAT from 30% to 5% on certain children’s meals and family attractions. Great for families, but it creates a huge web of challenges for the businesses supplying them! So, let’s do a quick rundown of what this reduction means, and how you can manage it properly.
What is the 5% VAT Rate?
The government introduced a temporary 5% VAT rate on certain supplies aimed at families during the summer holidays. It runs from the 25th of June to the 1st of September, and is designed to reduce the cost of some family meals and days out over the summer. It applies across the whole of the UK, and covers 3 broad categories:
Certain children’s meals served in restaurants, cafes and similar establishments for consumption on the premises.
Children’s family admission tickets for cinemas, theatres, concerts, exhibitions and shows.
Admission tickets to certain family attractions including amusement parks, theme parks, adventure parks, soft play centres, zoos, museums and similar.
Plus, if an attraction qualifies for the 5% reduced rate, it can apply to admission tickets for adults as well as children. So if a family is visiting a qualifying attraction, you don’t necessarily need to sell them separate child and adult tickets for the 5% rate to apply.
However, (there’s always a ‘however’, isn’t there?) this isn’t a blanket 5% VAT rate for everything connected to hospitality. You still need to look at exactly what you’re selling, and whether it falls within the rules.
Children’s Meals
This is an area that’s already caught a lot of businesses out. For a children’s meal to qualify for the temporary rate, it needs to be put out to sale as a meal specifically for children, and supplied as part of catering services by a restaurant, café or similar establishment and be consumed on the premises. HMRC’s guidance on this says that the reduced rate doesn’t apply for:
- Meals marketed as smaller portions.
- Lower calorie options.
- Discounted versions of adult meals.
- Shared meals intended for both adults and children.
For example, if you have a children’s menu with meals specifically marketed and priced for children, those qualifying meals can be charged at 5% during the temporary period. But if an adult orders something from your standard menu and their child happens to eat half of it, that doesn’t magically turn it into a 5% VAT supply!
Yes, it’s confusing, but that’s exactly why getting your bookkeeping and till system set up correctly matters.
What About Family Attractions?
The rules are slightly different for attractions. The 5% rate applies to admission to a range of family attractions, including things like:
- Amusement parks
- Adventure parks
- Water parks
- Soft play centres
- Zoos
- Museums
- Circuses
- Fairs
And certain other attractions. For these qualifying attractions, the reduced rate applies to tickets for both adults and children.
But that doesn’t mean that anything vaguely family-friendly automatically qualifies for the rate reduction. If you’re not sure, it’s always worth checking with your bookkeeper.
The Bookkeeping Bit
My biggest bit of advice for any businesses affected by the 5% VAT rate is this. Don’t leave it until your VAT return is due. If you do, you’ll have weeks or even months of transactions to untangle. It’s much easier to be proactive, and my tips to keep on top of things would be:
Check your VAT codes now: Make sure that your accounting software, till and booking systems are all set up and using the correct rates. You don’t want to be manually correcting hundreds of transactions at the end of your VAT quarter because your till system has been sending everything through at 20%. Make sure everything is in line and you’ll save yourself a headache.
Keep your sales records clear: You should be able to see which transactions are subject to the new 5% VAT, and which stay at 20% or another rate.
Are you passing on the savings: It’s important to separate two things in your bookkeeping, the VAT rate you have to account for, and the price you choose to charge. The measure has been put in place to reduce costs for families, but your pricing is ultimately a business decision. So you need to decide whether you’re passing on, or some of the savings.
Test your systems: Put through a test transaction and follow it all the way through your systems to make sure everything is behaving the way it should be. You should be checking that the customer is charged the right amount, the VAT is calculated correctly, the transaction is recorded using the right VAT code, the information feeds through to your bookkeeping software properly and your VAT return is going to pick up the transaction correctly. It sounds like a lot of checking, but it’s easier to fix one test than several thousand real ones!
Watch your mixed transactions: Mixed transactions are where things can get complicated. If you sell packages that contain a mix of different products or services, you should check whether you need to split the price rather than applying one VAT rate to everything. Don’t just apply the 5% VAT to a customer’s entire customer’s transaction just because they’re visiting with children.
Payment dates matter: Another area that gets confusing. The reduced rate applies to qualifying admissions between the dates 25th June and 1st September. So if someone buys a ticket during summer but the admission date is for October, then the standard VAT rate applies. But if the admission date is within that time and someone had already bought a ticket in advance, then there are circumstances where you can apply the 5% rate and make an adjustment to the VAT you’ve already accounted for. This can get messy fast, so make sure you ask for help if you need it.
Keep records of your calculations: If you’ve had to work out a fair and reasonable appointment, make sure you keep your working out! Don’t rely on remembering how you arrived at the figure three months later.
Put the end date in your diary: This temporary rate won’t run forever. In fact, it finishes on the 1st of September, which means you need to go back to charging your normal rate for VAT on the 2nd. Put the date in your diary to change the systems back and save yourself a heap of problems.
Reconcile regularly: Don’t let a busy summer push your bookkeeping to the bottom of the pile. The more often you reconcile your sales, the easier it is to spot something that doesn’t look right.
Ask for help if you’re unsure: VAT is complicated enough, without trying to decode HMRC guidance at 10pm after a busy Saturday! If you’re struggling, ask for help from a bookkeeper like me, or an accountant.
A temporary VAT reduction can be great news for families, and it’s been fantastic so far at creating opportunities for hospitality and leisure businesses to attract more customers over the summer. But whenever VAT rates change, there’s an administrative side that businesses can’t afford to ignore.
If you’re a hospitality or leisure business and you’re not sure whether you’ve got your VAT set-up right for the summer, give me a call and I’d be happy to talk it through. After all, I’d much rather help you get it right at the beginning than spend hours untangling it when your VAT return is due!