If you’re a business in the hospitality sector, or your business claims back VAT on travel or staff entertainment, it’s important that you’re aware of a change to VAT rates.
Goods that were previously subject to a discounted rate of 5% VAT, will be affected by a new higher 12.5% rate coming into force on 30th September 2021.
Why is the VAT rate changing?
In July 2020, the UK government temporarily reduced VAT levels for certain supplies within the hospitality sector to 5%. This was a bid to protect jobs and support businesses in the hospitality sector, who had been hardest hit by the restrictions imposed in response to the Covid-19 pandemic.
The reduced VAT rate on these specific supplies was initially introduced for a fixed period of 6 months, however it was extended in response to ongoing lockdowns and economic uncertainty.
In the 2021 budget, Chancellor Rishi Sunak announced that the lower 5% VAT rate will come to an end on 30 September 2021, being replaced with a new rate of 12.5% until 31 March 2022.
What does the VAT rate apply to?
The VAT rate applies to:
Hospitality including food and non-alcoholic drinks, as well as hot takeaway food and hot takeaway non-alcoholic drinks.
Accommodation including Hotels, caravan pitches, tent pitches, holiday cottages, etc.
Attractions such as cinemas, theatres, amusement parks, zoos, exhibitions, etc.
What do I need to do to prepare for the new VAT rate?
There are a number of steps that businesses should take to prepare for this change in VAT rate, including:
- Be aware that any invoices raised, or payments received for impacted goods or services before the 30th September will be subject to 5% VAT. This applies even if the invoice or payment relates to a booking after that date.
- If you’re claiming back VAT on travel or staff entertainment, you’ll need to be aware of the change. If you receive a simplified invoice, you’ll need to apply a new VAT fraction of 1/9th for the items affected.
- If your business is on the VAT flat rate scheme, you will need to use the following new rates for services supplied after 30th September:
- Catering – 8.5%
- Hotels or similar accommodation – 5.5%
- Pubs – 4%
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