Applying the VAT Cut in FreeAgent and Xero
A VAT cut in the food, drink and hospitality sectors came into force this week following the Chancellor’s ‘Summer Economic Update’ last week.
Several large chain restaurants including Nando’s, McDonald’s and Starbucks said that they would reduce their prices in line with the reduction, but many companies are expected to use the cut - from 20% to 5% - as a windfall to shore up their finances.
Together with other measures, it is hoped that the tax cut will get consumers spending and help firms recover.
The sector-specific VAT reduction, which will stay in place until 12 January, is easy to apply on cloud accounting software including Xero and FreeAgent.
Because this software is based online, it makes it easy to apply updates when there is a change in tax rules or any other changes that might affect your business.
What transactions are affected?
If you want to apply the VAT cut successfully, it’s important that you know which transactions are applicable.
The reduced VAT rate only applies to the supply of food and non-alcoholic drinks from restaurants, pubs, bars, cafes and similar premises between 15 July 2020 and 12 January 2021.
The cut will also apply to the supply of accommodation and admission to attractions during the same period. You can find more detailed information on the .
Applying the reduced VAT rate in FreeAgent
If any of your products qualify for the VAT cut, you can apply the reduced rate in FreeAgent when you create bills and expenses and when you explain your bank transactions.
You can also apply the reduced VAT rate to invoices and to any sales that you record as bank transactions. You will find full instructions in the .
FreeAgent’s accounting software can also keep you up to date with what you owe and can automatically generate VAT returns based on information that you put in the system.
Applying the reduced VAT rate in Xero
For most businesses, the reduced 5% VAT rate should already be available in Xero for VAT on income and VAT on expenses.
All you need to do is select the appropriate VAT rate for any affected products. More information on how to choose tax rates can be found in this .
If these new rates don’t appear in your Xero account, of if you prefer to identify it as a special 5% rate for food, drink or hospitality, you can easily .
To help you save time when applying the reduced rate on every transaction, you can also set up default rates in your system.
For more advice and assistance with Xero or FreeAgent cloud accounting software, speak to one of our specialist accountants today. Call: 0808 281 0303.