Government extends reduced VAT rate for hospitality, hotel and holiday accommodation supplies
For the last nine months businesses in the hospitality, hotel and holiday accommodation sectors have benefitted from a temporary five per cent reduced rate of VAT on certain supplies.
This has helped companies in these hard-hit sectors to manage the impact of the COVID-19 pandemic, which has forced many businesses to temporarily close.
However, this relief was due to end imminently on 31 March 2021. In response to calls from industry and in light of the Government’s roadmap for leaving lockdown, the Chancellor Rishi Sunak announced in the Budget that the temporary five per cent rate of VAT for these sectors will now be extended until 30 September 2021.
After this rate ends, a new reduced rate of VAT of 12.5 per cent will be introduced on the same supplies for the period from 1 October 2021 until 31 March 2022.
The following supplies, which already benefit from the five per cent reduced rate, will remain at five per cent through this extension period and then move to the 12.5 per cent reduced rate for the further period to 31 March 2022:
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.
The reduced rate is also available for admissions to the following attractions where they are not already eligible for the cultural VAT exemption:
theatres
circuses
fairs
amusement parks
concerts
museums
zoos
cinemas
exhibitions
similar cultural events and facilities.
If you are a small business and use the Flat Rate Scheme, to simplify your VAT calculations, certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT to assist you.
In most cases, businesses will simply account for VAT at either five per cent or 12.5 per cent for supplies made between now and the end of September and 1 October and 31 March 2022 respectively.
However, there may be situations where you receive payments or issue invoices that straddle the change in VAT rates, in which case you may need to correctly apportion the VAT charged.
If you face this issue, it may be necessary to amend your method of accounting for VAT, which is why you should seek professional advice.
The previous HM Revenue & Customs (HMRC) brief for the temporary reduced rate can be found here.
Meanwhile, further guidance on the operation of the new 12.5 per cent reduced rate will be published when it comes into effect on 1 October 2021.
If you are unsure if this reduced rate extension applies to your business or you are a business operating in the hospitality, hotel and holiday accommodation sectors that needs VAT advice, please contact our knowledgeable team today.
Government extends reduced VAT rate for hospitality, hotel and holiday accommodation supplies
