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In what way vat affecting the business of hotel industry? What is the tax structure for hotel industry? |
If we pay tax @ 12.5% on food for hotel industry,is it require to pay service tax - under Mandap tax ( conference etc) if it so, then we are paying about 22.5% for some amount (12.5% on vat and 10% as service tax) under mandap tax act (if we are conducting conference etc with food package) please clarify Customs & Excise has recognised that businesses within the Hospitality Industry often raise the same kind of questions. The purpose of this article is to raise awareness and to provide information in a Q and A format, linking to more detailed guidance where appropriate. The article has been produced in consultation with a number of Hospitality trade bodies and we have asked them to consider carrying it on their websites. Businesses are also encouraged to contact our National Advice Service, with any questions they may have. Normally your sales will be standard rated, with VAT charged at 17.5% on the net value of your supplies. Reference in this article is occasionally made to zero rated, exempt and outside the scope. Zero-rate applies to things such as most cold take-away food and is charged at 0% on the net value of your sales. Supplies that are exempt from VAT mean that you make no charge for VAT but they may affect the amount of input tax that you can recover on your business expenses. An example would be leasing or letting land and buildings (but not lettings of garages, parking spaces or hotel and holiday accommodation). If you provide accommodation for the purpose of catering in a hotel, inn, boarding house or similar establishment, your supply is standard-rated whatever the length of let. If you supply a room that is not for the purpose of a supply of catering such as for a conference room, your supply is exempt, provided you have not opted to tax. For further information, go to Notice 709/3 Hotels and Holiday Accommodation. For the purposes of VAT, the term 'land' includes any buildings or structures permanently affixed to it. You do not need to own the land in order to opt to tax. Once you have opted to tax, all the supplies you make of your interest in the land or buildings will normally be standard-rated. And you will normally be able to recover any VAT you incur in making those supplies. For further information contact us on 0845 010 9000 or go to Notice 742A Opting to tax Land and Buildings. Outside the scope of VAT refers to activities such as tips, which are given freely by the customer. These supplies are not included within the coverage of VAT Act, unlike the other rates (standard, zero and exempt). You may be eligible to apply the flat rate scheme to your business. Details about this can be found later in the article. Q. Is there a simple rule to help me work out how much VAT I need to declare on my return and pay? A. For standard rated supplies you can calculate the amount of VAT due by applying the VAT fraction of 7/47ths to your gross takings, to give you your output tax amount. You should however be careful to exclude any zero-rate or exempt supplies from this calculation, unless you are taking advantage of the Flat Rate Scheme. An example of applying the VAT fraction is: If you sell something at a gross price of ... And the VAT rate is... Then the amount of VAT is... 拢2.35 17.5% 拢0.35 However, 拢0.35 is not 17.5% of 拢2.35. It is 7/47 of 拢2.35. This is how it is worked out: Rate of Tax 100 + rate of tax So, with VAT at 17.5% the VAT fraction is: 17.5 = 7 117.5 47 117.5 47 There is no clear answer to this. We will be concerned with separations, which are a contrived device set up to circumvent the normal VAT registration rules. Whether any particular separation will be considered artificial will, in most cases, depend upon the specific circumstances. Accordingly it is not possible to provide an exhaustive list of all the types of separations that we will view as artificial. However, the following are examples of when we would at least make further enquiries: * separate entities supply registered and unregistered customers; in this type of separation, the registered entity supplies any registered customers and the unregistered part unregistered customers; * same equipment/premises used by different entities on a regular basis. In this type of situation, a series of entities operates the same equipment and/or premises for a set period in any one-week or month. Generally the premises and/or equipment are owned by one of the parties who charges rent to the others. This situation may occur in takeaways such as fish and chip shops or mobile catering equipment such as ice cream vans; * splitting up of what is usually a single supply. This type of separation is common in the bed and breakfast trade where one entity supplies the bed and another the breakfast; * artificially separated businesses, which maintain the appearance of a single business. This type of separation includes pubs in which the bar and catering may be artificially separated. In most cases the customer will consider the food and the drinks as bought from the pub and not from two independent businesses. The relationship between the parties in such circumstances will be important here as truly franchised "shop within a shop" arrangements will not normally be considered artificial; and * one person has a controlling influence in a number of entities which all make the same type of supply in diverse locations. In this type of separation a number of outlets which make the same type of supplies are run by separate companies which are under the control of the same person. Expanding on some of these examples we would want to consider if disaggregation applies where you run a business with one or more people and structure the business in such a way that each person is responsible for a distinct element of the business or you ensure that income streams are treated separately. Where we believe that the split of responsibilities or income streams is artificial or contrived, often leading to businesses operating below the VAT threshold, we will take a view/decision on your liability to register for VAT based on what we believe is the true business structure. Practical examples of where this could be a consideration are: * pubs and clubs where food and live entertainment are treated as separate income streams; * cafes where a delivery or sandwich service is offered to a customer base which is primarily different to the one to which shop sales are made; and * a catering business, which deals with a number of different types of customer/event. We would advise that you fully explore your liability to register when you create your initial business structure. Our National Advice Service would be happy to talk to you about this on 0845 010 9000. Details of our National Registration Service can be found in Notice 700/1 Should I be Registered for VAT? Click on the link below and refer to VAT Schedule of concerned State in which you are http://allindiantaxes.com/vat.php... VAT and service tax are separate taxes; however if one activity is subject to VAT it is prima facie not covered under service tax. You are required to have separate billing of conference hall booking on which service tax can be paid and separate billing for food on which VAT can be paid. Refer to service tax Notification No.1/2006 in allindiantaxes site for exemption from value if any. www.allindiantaxes.com |
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