Constable VAT has received enquiries from many businesses asking about how the temporary reduced rate of VAT for certain supplies of hospitality, hotels and holiday accommodation applies to their operations. One of the most common areas of confusion is in relation to wedding packages.
Prior to the introduction of the temporary reduced rate of VAT of 5% for certain supplies of hospitality, hotel and holiday accommodation, HMRC’s Public Notice on Hotels & Holiday Accommodation (709/3), stated that supplies of ‘wedding packages’ represented single, standard-rated supplies for VAT purposes – regardless of whether the catering is supplied in house by the wedding package organiser, or by an external third party caterer.
Following the introduction of the reduced rate on 15 July 2020, HMRC updated Public Notice to include another paragraph in Section 4.4 which, in reference to in-house catering and wedding packages, reads:
“Between the 15 July 2020 and 12 January 2021, if the catering is provided in house as a separate supply, it may benefit from the temporary reduced rate subject to the rules on single and multiple supplies.”
Understandably, this has caused a significant degree of confusion: is a wedding package a single standard rated supply or is the catering element capable of benefitting from the temporary reduced rate?
Many relevant businesses will supply packages consisting of, for example:
- Use of rooms for service
- Hire of suite for couple
- Evening party
- Wedding breakfast
For these businesses, HMRC’s Guidance is confusing as it states that wedding packages are standard rated, single supplies, but also states clearly that the catering element, if a separate supply, does benefit from temporary reduced rating. The rules surrounding whether a supply is a single or multiple supply for VAT purposes are themselves complex.
Businesses in this position may need professional assistance to ensure compliance with the law, whilst also ensuring that they and their clients benefit from the temporary VAT reduction as much as possible. Whether the reduced rate is applicable to your business, or part of it, is a question which must be answered on a case-by-case basis as the VAT position will be dependent on the facts applying to each particular business.
Via the ACCA and the Joint VAT Consultative Committee, Constable VAT sought clarification from HMRC on how the new rate should apply to wedding packages and we anticipate that the notice will be further amended soon. However, initial indications are that this may not provide the certainty that businesses need in order to feel confident to pass on the potential 15% saving to clients. HMRC has suggested that the 5% rate of VAT can only be applied where catering is provided by the owner of a venue without any of the other items listed. For example if only the wedding breakfast is provided.
It goes far beyond the scope of this newsletter to fully rehearse the legal argument for and against applying the reduced rate to all or part of a package, but it seems that a few months of applying the reduced-rate may have to be balanced against the potential that this is followed by several years of litigation. However, we are advised that there is already some distortion to comprehension as different tax lawyers adopt seemingly different stances and business practices vary, which could potentially lead to different outcomes.
The difficulty this presents to us can be summarised as follows:
- If there is a single supply of “a package” then, ordinarily, if one element is the main aim and principal element then that main supply would dictate the liability of the entire supply. For example, if the wedding breakfast is the main element then “ancillary elements” would also be subject to the reduced rate. Thus the “a package” is a single supply classification might point to more scope to apply the reduced rate – rather than the whole supply being standard-rated.
- If the single supply position is based on the view that no single element predominates, but the bundle represents a single complex supply, then the situation becomes more involved. However, although there is strong case law that one cannot apportion a single supply (and apply different rates of VAT to different elements), the courts have held that an exception to this can arise when within that bundle of services there is a reduced rate element.
Unfortunately, we can offer no panacea to this fraught technical issue. Overlying the already complex technical issues is the fact that every supplier’s circumstance will differ, with no two venues providing identical facilities and differing. Our key observations are that businesses that do apply the reduced rate are advised to try and protect themselves contractually by maintaining the right to charge 20% VAT if required and seek professional advice to minimise the risk of HMRC imposing penalties. This is not an issue on which certainty may be achieved in the time available but to reduce the risk of penalties a business must show that it has taken reasonable care in reaching its decision.
To discuss the temporary reduced rate and how it may impact your business, please do not hesitate to contact Constable VAT – we will be pleased to assist.
This article is intended to give general guidance only and cannot be relied on in respect of any individual business. The facts may change as more information on the application of the reduced rate in particular circumstances is issued by HMRC. If you require advice specific to your business please contact Constable VAT or your usual adviser.