From 1 October 2021, a new reduced interim VAT rate of 12.5% will be introduced for hospitality, holiday accommodation/attractions and it will stay in place until 31 March 2022. It replaces the current temporary reduced rate of 5% for these sectors.
This reduction in VAT is intended to boost trade immediately for hotels, B&B’s, cafes, pubs, restaurants, cinemas, zoos and theme parks to name but a few.
The reduced rate of VAT will apply to:
- Hot/cold food and non-alcoholic beverages for consumption on the business premises, for example, cafes, restaurants and pubs. Cold takeaway food continues to be subject to VAT at 20% or 0% under the existing rules.
- Hot takeaway food and hot takeaway non-alcoholic drinks.
- Sleeping accommodation such as hotels and similar establishments, holiday accommodation, caravan and tent pitch fees and associated families
- Admissions to theatres, shows, fairs, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities. If a business charges admission fees that are currently exempt then that will take precedence and the admission will not qualify for the reduced rate. The reduced rate does not apply to admission to sporting events.
From 1 October 2021, all eligible businesses should apply the interim VAT rate of 12.5% on takings of supplies made of the goods and services listed above and on issued invoices until 31 March 2022.
Care will need to be taken where goods and services were supplied prior to 1 October 2021 but invoiced after 1 October 2021, and vice versa.
For example, in some circumstances, if a business has received a payment or deposit before 15 July 2020 but supplies the goods or services after 15 July 2020, then the business can choose to charge and account for VAT at 5% by issuing a credit note within 45 days of the rate change.
Flat Rate Scheme Changes
HMRC have updated the flat rate percentages to take account of the new reduced rate for VAT.
As of 15 July 2020 until 30 September 2021 the following sector rates apply:
- Catering 4.5% (reduced from 12.5%)
- Hotels 0% (reduced from 10.5%)
- Pubs 1% (reduced from 6.5%)
From 1 October 2021 until 31 March 2022 the following sector rates apply:
- Catering 8.5% (interim VAT rate)
- Hotels 5.5% (interim VAT rate)
- Pubs 4% (interim VAT rate)
Businesses that operate outside of the hospitality, holiday accommodation and attraction sectors may also be impacted by the VAT rate change if they make purchases from these sectors.
You’ll be able to apply the new VAT code in QuickBooks, Xero and other software after 1st October 2021.