1st October 2021
Given the recent removal of coronavirus restrictions, the government is adapting the VAT rate for the supplies made by the hospitality industry that have been subject to 5% VAT since July 2020. The VAT rate will increase from 5%, to 12.5% on the 1st October 2021 and will remain in force until the 31st March 2022 where it will then revert to the standard rate of 20%.
Prior to the introduction of a reduced rate, the standard rate of VAT was applied toa number of hospitality supplies.
As per the government HMRC website, the following supplies will remain affected by the change in VAT rate:
- “Hospitality: supplies in the course of catering including supplies of hot and cold food and drink to be consumed on the premises and supplies of hot takeaway food and drink to be consumed off the premises
- Accommodation: the provision of hotel and holiday accommodation, pitch fees for caravan parks and tents and related facilities
- Attractions: admission to attractions not covered by the cultural exemption”
Due to the extension and introduction of the temporary reduced rate of 12.5%, cash flow and survival/viability of businesses in the hotel, hospitality and tourism sectors is expected to be boosted, following multiple periods of closure throughout the coronavirus pandemic.
For business opting to pass some or all the saving on to consumers, therefore lowering consumer prices, this may result in increased spending in these sectors.
Businesses may face a one-off cost associated with the familiarisation of the changes and potential changes to IT system to account for a new rate and/ or minor business changes such as altering menus due to a change in prices.
A peculiarity of the rules will mean that if a business raises an invoice or accepts a payment received before 1st October, these sales will be subject to the rate in force on the invoice or payment date, rather than when the goods or services are subsequently consumed.
Any queries, please do not hesitate to contact any of the team at THL.
Felicity Wise