There are changes in the VAT treatment of certain supplies of hospitality and tourism sector as announced by the government last 8th July 2020. They introduced a temporary 5% reduced rate of VAT for certain supplies. This will have effect from 15th July 2020 to 12th January 2021. The reduced 5% VAT rate applies to: Food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs Hot takeaway food and hot takeaway non-alcoholic beverages Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities Admissions to the following attractions that are not already eligible for the cultural VAT exemption such as: Theatres Circuses Fairs Amusement parks Concerts Museums Zoos Cinemas Exhibitions Similar cultural events and facilities Where admission to these attractions is covered by the existing cultural exemption, the exemption will take precedence. How to apply the VAT cut in Xero The reduced 5% VAT rate is already available in Xero – all you need to do is select the appropriate VAT rate for affected supplies as instructed by HMRC. If the rates do not appear in your Xero account, you can easily create them by: Login to your Xero account In the Accounting menu, select Advanced, then click Tax rates Click New Tax Rate Enter a display name and select a tax type Add the tax component name and enter the VAT percentage Click Save These can also be set up as default VAT rates in Xero. You can choose a default account to use for contacts and inventory items given that these VAT rates has been set up. You can also set up tax rates to load by default when you create a new invoice, bill, spend or receive money transaction for specific: Contacts Go to Contacts and search for the contact you would want to assign with a default VAT rate Select the relevant contact Click Edit found in the upper right side Scroll down under financial settings, VAT, and amend the default Sales VAT or default purchase VAT Click Save Inventory items Go to Business and select Product and services Select the relevant item that you would want to assign with a default VAT rate Click Edit item Amend the Tax Rate by selecting from the drop down Click Save Accounts in your chart of accounts Go to Accounting menu, and select Chart of Accounts Select the relevant account that you would want to assign with a default VAT rate Amend the Tax rate by selecting from the drop down Click Save Please visit the gov.uk website for more details about the changes announced. We can help you If you need any support or training for using Xero or would to find out how you make the most of your cloud accounting software, email discovery@a4g-llp.co.uk or call 01474 853 856. Contact me today! Emma White FCA Partner 01474 853856 emma.white@a4g-llp.co.uk Send me a message Ask me a question Fill in your details below and I’ll come back to as soon as I can! If your enquiry is more urgent, please do give me a call. Your full name* Contact no.* Email address* Business name* Industry / Profession* Your messageOne last thing...*By ticking this box you agree to being contacted via email or phone by one of our Advisers, and for the information you provide us with to be kept securely for future communications in line with the new GDPR Yes, I agree Further reading… Blog Xero product updates you should know about Find out more Blog Cashflow planning for the next 2 months Find out more Share this article Other posts of interest 9th September 2022 “Save me tax!” Read more 8th June 2020 How “Pandemic PR” could work wonders for your business Read more 25th November 2019 Myth busting with Wills Read more See more articles