VAT Reduced Rate

Updated on June 1, 2022

dodd & co logo

VAT reduction for hospitality, holiday accommodation and attractions

The hospitality and tourism industry will see a reduction in VAT for a limited time. From 15 July 2020 to 30 September 2021, the VAT rate will be cut from 20% to 5%, with an interim VAT rate of 12.5% from 1 October 2021 to 31 March 2022.

Who does it apply to?

Hotel chains, bed and breakfasts, cafes, bars, restaurants, movie theatres, zoos, and theme parks, to name a few, hope that this VAT cut would immediately improve business.

The reduced rate of VAT will apply to:

restaurants, bars, cafes, and other establishments serving hot and cold food and non-alcoholic beverages. Taxes on cold takeaway meals will continue to be applied at 20% or 0% under the current laws.
hot takeaway cuisine and hot non-alcoholic beverages.
Hotels, motels, hostels, and other lodging options, as well as camping, RV parks, and other comparable facilities, as well as admission fees to museums, zoos, aquariums, and other cultural attractions for individuals and their families. It will not be possible to take advantage of the lower rate if a business charges admission fees that are now exempt. Attendance at athletic events is not eligible for the discounted cost.

How does it work?

On takings of supply made of the items and services indicated above and on invoices submitted from 15 July 2020, all qualified enterprises must charge a lower VAT rate of 5% until 30 September 2021. All qualifying businesses should use the 12.5% interim VAT rate from October 1, 2021 to March 31, 2022.

Products and services provided before July 15th, 2020 / October 1st, 2021 but invoiced after those dates will need to be scrutinised, and vice versa.

It is possible, for example, for a business that has received a payment or deposit prior to July 15, 2020, but furnishes the products or services after that date, to choose to charge and account for VAT at 5% by issuing a credit note within 45 days of the rate change.

Flat Rate Scheme Changes

Flat rate percentages have been revised by HMRC to reflect the new lower VAT rate.

As of 15 July 2020 until 30 September 2021 the following sector rates apply:

Catering 4.5% (reduced from 12.5%)
0% of hotels (reduced from 10.5 percent )
Pubs 1% (reduced from 6.5%)

From 1 October 2021 until 31 March 2022 the following sector rates apply:

Catering 8.5% of the population (interim VAT rate)
Inns and suites: 5.5% (interim VAT rate)
4 percent of pubs (interim VAT rate)

Further detailed guidance can be found on the gov.uk website: https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay