Temporary reduced VAT rates for the Hospitality Sector

As reported in our Budget Review in March 2021, the temporary reduced rate of VAT which was announced on 8 July 2020 for the hospitality and tourism sector has been extended. Here is a reminder of the background and details of the new rates and dates.

What is the background?

On 8 July 2020, the government announced a temporary 5% reduced rate of VAT for certain supplies relating to hospitality, hotel and holiday accommodation and admission to certain attractions.

The reduced rate was initially introduced for a temporary period between 15 July 2020 and 12 January 2021 and was subsequently extended to 31 March 2021.

In the Budget 2021, the Chancellor announced that the 5% reduced rate will be extended again until 30 September 2021 and further that from 1 October 2021 until 31 March 2022, the temporary reduced rate of 5% VAT will change to the new reduced rate of VAT of 12.5%.

The normal standard rate of 20% will return on 1 April 2022.

VAT rates and fractions

If you calculate VAT due to HMRC from cash received, from 1 October 2021, there will be a new VAT fraction. VAT percentages and fractions are:

 

Date VAT % VAT fraction
15 July 2020 to 30 September 2021 5% 1/21
1 October 2021 to 31 March 2022 12.5% 1/9
1 April 2022 onwards 20% 1/6

 

What about the flat rate scheme?

If you use the flat rate scheme, the current temporary rate will also change on 1 October 2021. The changes to the flat rate scheme percentages for affected sectors are:

Industry Pre 15 July 2020 15 July 2020 to 30 September 2021 1 October 2021 to 31 March 2022
Catering services including restaurants and takeaways 12.5% 4.5% 8.5%
Hotel or accommodation 1.5% 0% 5.5%
Pubs 6.5% 1% 4%

 

How is VAT on deposits treated?

If deposits are received in advance of a supply, output tax will be calculated on the VAT rate in place at the time the deposit is received regardless of when the supply takes place.

For example, if a customer books a hotel room for April 2022 on 1 June 2021 and pays a deposit of £100 at the time of booking, the output tax on the VAT return for this period is £4.76 (£100 x 1/21).

If in October 2021, the customer pays a further deposit of £100. The output tax due on the VAT return for this period is £11.10 (£100 x 1/9).

The further extension to the temporary rate is a welcome measure for the sector which has been one of the hardest hit by the pandemic.

If you need any further help or guidance on this topic get in touch at hello@chw-accounting.co.uk

 


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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