VAT update: ‘Eat out to help out’ scheme

Published: Monday 17 August 2020

As part of announcements in the summer statement to encourage support for the hospitality sector, the Chancellor proposed the ‘eat out to help out’ scheme, where diners are entitled to a 50% discount on their food or non-alcoholic drinks up to £10 per head from Monday to Wednesday throughout August. Registered businesses subsequently claim the discount back from the Government.

What is changing?

The first claim cannot be made until at least seven days after registration for the scheme, but thereafter can be submitted on a weekly basis. HMRC will pay eligible claims within five working days.

From the viewpoint of VAT, nothing is changing! The important point to remember is that VAT will always be due on the whole amount of the bill, as this is the amount of consideration that the business will ultimately receive, partly from the customer and partly from the Government. 

The example below shows how the calculations should be made, incorporating the situation where part of the bill is subject to VAT @ 20% and part falls within the temporary 5% reduced rating.

A group of six diners have a bill of £300, which includes £100 on alcoholic beverages, plus an optional 10% service charge, for a total bill of £330.

Description Price
Bill before discount £330
Amount spent on alcohol £100
Service charge (10% of 300) £30
Amount that the discount can be applied to £330 - £130) £200
Uncapped discount (50%) £100
Capped discount (£10 per diner) £60
Bill after discount is applied (£330 - £60) £270
Amount claimable from the Government £60

Paying the service charge in this example is optional, so this is outside the scope of VAT, no VAT is due on this amount, hence VAT will be payable on an amount of £300 in total.

VAT will be due at 20% on the alcohol amount of £100, so applying the VAT fraction of 1/6 = £16.67. VAT will be due at 5% on the undiscounted amount for the rest of the meal of £200, so applying the VAT fraction of 1/21 = £9.52. Hence the total VAT liability is £26.19.

Who will be affected?

All VAT-registered eligible businesses that have registered for the scheme by 31 August 2020.

An eligible business is one which has an establishment(s) in the UK from which it sells food for immediate consumption on the premises and which provides its own dining area or shares a dining area with another establishment for eat-in meals. The business must have been registered as a food business with the relevant local authority on or before 7 July.

When does it take effect?

3 August 2020.

Are there any exceptions?
Establishments that only offer takeaway food or drink, hotels that provide room service only, mobile food vans or trailers and businesses that provide catering services for private functions or dining services (such as packaged dinner cruises) are some of the examples of businesses that do not satisfy the conditions noted above and therefore are not eligible for the scheme.

Actions required
Businesses wishing to avail themselves of the scheme must register with HMRC. Details of the process can be found here.

Once registered, for each day that the scheme is being operated, details must be kept of the:

  • total number of diners (covers) who have used the scheme in the establishment;
  • total value of transactions under the scheme; and
  • total amount of discounts given.

These records must be maintained for each individual establishment that is using the scheme.

If you have any questions about VAT for the ‘eat out to help out’ scheme or other indirect taxes queries, please contact Julian Millinchamp at julian.millinchamp@hazlewoods.co.uk or 01242 237661.

Key contacts

Julian Millinchamp
Julian Millinchamp
Indirect Tax Director
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