Eat Out Scheme VAT Trap

‘Eat Out’ Scheme VAT Trap

Have you also been hearing the ‘Eat Out to Help Out Scheme’ being referred to as a discount? This is actually quite a scary misdescription as it could so easily lead to people into declaring the wrong amount of VAT. Add this scheme to having to operate the mix of 5% & 20% VAT rates between food and alcohol and you are brewing a perfect storm. What it means in practice is that any hospitality business really needs to make sure they know what they’re doing and avoid walking straight into the ‘Eat Out’ Scheme VAT Trap.

The detailed guidance issued by HMRC sets out how the Eat Out Scheme needs to be operated and includes guidance on how to account for VAT.

The Scheme is effectively Government aid that doesn’t affect the value of the supplies actually being made to the customers. In other words it isn’t a discount at all but an amount being received which has nothing to do with the values that need to be declared on the VAT return.

This is where the trap lies.

By thinking of the scheme as a discount the natural assumption seems to be to think that the value of the food and drink being sold is reduced by upto £10 per diner (inclusive of VAT). It follows from this train of thought that the VAT that will be declared on the VAT return will be based on what the customer pays and that would be wrong.

HMRC’s guidance usefully outlines a number of situations with a different mix of meals, alcohol and the Eat Out Scheme showing the values to be used for VAT accounting in each case. This also explains how the £10 cap applies and interacts with any other special offers.

In a nutshell VAT is still due on every customer’s entire bill and this should not be discounted by any amount received from the Government under the Scheme. Let’s hope that by highlighting the risks we can help businesses avoid this ‘Eat Out’ Scheme VAT Trap.

This arrangement started off feeling like a nice gesture but then you look at the examples given in HMRC’s guidance. These show all of the different elements involved in calculating the VAT that is due so you have to wonder if the cost of implementation and operation will outweigh the benefit.

As ever, if we can help at all, please call. Sooner is always better.

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