Updated on May 24, 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.
Additionally, the 5 percent VAT rate was extended for an additional year, with the rate climbing to 12.5 percent for a short period of time before returning to the original rate of 20.2 percent on 1 April 2020. There were hopes that the Chancellor would extend his assistance for the hospitality industry by retaining the rate at 12.5 percent or maybe lowering it to 5 percent indefinitely in the recent Autumn Budget. Although no such recommendations were made in the Budget, the VAT rate will return to 20% on 1 April 2022 as scheduled.
The following supplies are exempt from the 12.5 percent VAT rate for the time being:
Catering materials are currently taxed at a rate of 12.5%.
In-house meals and non-alcoholic beverages, as well as hot takeout food and hot drink orders, are all included in the discounted pricing for a limited time. Cold takeaway food is still liable to a 20% VAT or a 0% VAT under the current laws.
The following types of establishments are exempt from the full price:
Restaurants, taverns, cafes, and other facilities that make qualifying supplies are eligible for the lower charge.
The following items are subject to VAT at the current rate of 12.5 percent:
Hotel and guest house stays, self-catering vacation rentals, caravan and camping rental costs, and pitch fees for campgrounds and RV parks
Deposits and advance VAT invoices have an impact:
As soon as the deposit is received, a “period of supply” is established for the purposes of applying the 5 percent VAT rate. This applies to deposits received before to October 1, 2021. VAT of 12.5% will be charged on deposits received between October 1, 2021, and April 1, 2022.
A time of supply for the entire value of the supply is created by issuing a valid VAT invoice that includes the full amount due. The 12.5% VAT rate can be used if VAT invoices are sent in advance of a stay that begins on or after April 1, 2022.
Admission to certain attractions
The following types of goods and services are subject to the current VAT rate of 12.5%:
Entry fees for various types of entertainment, including live performances, stage productions, fairs, amusement parks, music festivals, and other types of outdoor events.
Admissions ordinarily exempt from VAT under the existing cultural exemption are not subject to the interim reduced rate. This means that admissions to these events would continue to be exempt from VAT.
Other goods or services supplied
If the admission fee includes additional supplies of products and services (for example, a brochure, tour guide, or activity book), the discounted pricing will apply to the entire supply. According to HM Revenue & Customs’ advice, a brewery tour’s admittance fee may not be eligible for the temporary lower rate if it was incidental to the overall supply of food and drink.
You should think about whether the temporary lower fee for hospitality would also apply if food and drink are charged separately on the premises of the attractions.
Please contact Sean McGinness, Alison Hone, or Nick Hart for more information on how to maximise VAT efficiency in the hotel business before the VAT rate returns to 20%.