Updated on May 21, 2022
The government originally announced a temporary reduced rate for the hospitality industry in July 2020, as one of several measures designed to support certain business sectors during the pandemic.
Further announcements extended the application of the 5% VAT rate, with the rate climbing to 12.5 percent on 1 October 2021 for a limited time before reverting to 20 percent on 1 April 2022. It was hoped that the Chancellor will provide the hospitality industry more support in the recent Autumn Budget by holding the rate at 12.5 percent or possibly lowering it to 5% indefinitely. However, no such proposals were made in the Budget, and the VAT rate will, as expected, return to 20% on April 1, 2022.
The 12.5 percent VAT rate is currently in effect for the following items:
Catering supplies are currently subject to a VAT rate of 12.5 percent:
The temporary discounted pricing applies to in-house meals and non-alcoholic beverages, as well as hot takeout dishes and beverages. Cold takeaway food is still liable to 20% VAT or 0% VAT under current laws.
The reduced rate applies to the following types of establishments:
Qualifying supply made in restaurants, taverns, cafes, and similar venues are eligible for the discounted charge.
The following items are now subject to a 12.5 percent VAT rate:
Hotel and guest house stays, self-catering holiday accommodation, caravan and camping rentals, and pitch costs are all included.
Deposits and advance VAT invoices have an impact:
The receipt of the deposit establishes a time of supply for VAT purposes, and deposits received before October 1, 2021 will be subject to the 5% VAT rate. If a deposit is received between October 1, 2021, and April 1, 2022, the VAT rate will be 12.5 percent.
Issuing a valid VAT invoice that includes the full amount due creates a time of supply for the entire value of the supply. The 12.5 percent VAT rate could be applied if VAT invoices were issued in advance of a stay beginning on or after April 1, 2022.
Admission to certain attractions
The 12.5 percent VAT rate now applies to the following types of services:
Shows, theatre productions, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, and exhibitions are all available for purchase.
Admissions that are typically exempt from VAT under the existing cultural exemption are not affected by the temporary decreased rate. As a result, such admissions would continue to be VAT-free.
Other goods or services supplied
If the admission fee includes other incidental or supplementary goods and services (such as a brochure, tour guide, or activity book), the entire supply will be eligible for the temporary discounted rate. According to HM Revenue & Customs, if the entry charge for a brewery tour was incidental to the overall supply of food and drink, the admission charge may not be eligible for the temporary lower rate.
If you charge separately for food and drink consumed on the premises at the attractions, you should examine if the hospitality temporary discounted rate would also apply.
Please contact Sean McGinness, Alison Hone, or Nick Hart for more information on how to maximise VAT efficiency in the hotel sector before the VAT rate reverts to 20%.
VAT Update – April 2022
In our April VAT update, we discuss VAT recovery for a partially exempt business and the use of the standard method override; a case involving whether a flapjack was a cake or confectionary; and a reminder that the reduced rate of VAT in the hospitality sector has already expired.
VAT Update – March 2022
We comment on HMRC’s review of the UK investment fund market; we revisit IOSS with news on how to address instances of double taxation; and we highlight an opportunity to reclaim overpaid VAT using a specific VAT accounting procedure in our March VAT update.
VAT Webinar | Brexit-related VAT issues
Following the conclusion of the transition phase, all enterprises who trade with the EU have seen a wide range of changes in the previous year or so.
In this webinar, our experts review the significant changes that have occurred since the UK (England, Scotland, and Wales) and the EU established a physical border, as well as some of the unique issues that UK firms face, such as trading with EU companies and selling to consumer customers.