Pubs, clubs and restaurants open past midnight on New Year's Eve will be allowed to continue charging VAT at 15% on their sales until they close or until 6am on New Year's Day, the Government has announced.
The rate of VAT, which was cut to 15% last December in an attempt to boost consumer spending, is returning to 17.5% for most businesses at midnight on 1 January.
But the Treasury has said it will allow a "period of grace" for businesses that account for VAT at the point of sale, including pubs, clubs and restaurants.
Stephen Timms, financial secretary to the Treasury, said the Government acknowledged that New Year's Eve celebrations are "a vital source of income for many in the service sector".
"The Government recognises that it would be very difficult for them to make the necessary changes to account for VAT at 17.5% immediately after midnight," he said.
"To make the transition as easy as possible retail and telecommunication businesses will be able to charge VAT at the old rate into the early hours of New Years Day."
HM Revenue and Customs has issued a brief on the special accounting arrangements for the VAT change.
By Daniel Thomas
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