Temporary Reduced VAT Rate Ends on 31 March 2022

Updated on July 20, 2022

The interim VAT rate of 12.5% will expire on April 1, 2022, and the VAT rate will return to 20% for businesses in the hospitality industry.

In order to keep their accounting systems up to date, businesses utilizing the 12.5% rate will need to change it.

For some services related to hospitality, hotel and vacation lodging, and entry to specific attractions, a temporary 5 percent reduced VAT rate was instituted back in July 2020.

For the time being, it was 10% until September 30, 2021, when it rose to 12.5%. The scope of the aid was unaltered. In the Spring Statement 2022, the reduced rate was not extended.

Reference:

The March 2021 VAT policy document proposes a reduced tax rate.
Updated VAT Notice 709/1) for catering and takeaway food

Action points

By the first of April 2022, businesses that will be affected must ensure that their software changes for cash registers, credit card machines, and internet platforms are updated with the new VAT rate. This will be critical.

Till receipts must reflect the right rate.

If a service lasts longer than a day, the VAT rate will be applied at the time the service is performed, or when the service is completed. Advance payment or VAT invoice may necessitate a change in these dates.

Food and Drink

Customers who order meals and non-alcoholic beverages to be eaten on-site or off-site will have to pay VAT at a rate of 20% beginning on April 1, 2022.

Catering

The decreased VAT rate does not apply to catering provided by third parties for events, hence the 20% VAT rate must be applied. In hotels, room service is considered to be off-premises, hence it falls under this category.

As long as the catering is done in-house or contracted out, HMRC considers wedding packages as a single supply, and so requires an additional 20 percent on the final invoice price.

In order to save money, it may be necessary to assess the classification of a supplier as a package or only on-site catering.

Hotel & Holiday Accommodation

Most UK hotel and holiday accommodation deposits submitted for stays beginning on or after July 15, 2020 were also subject to the lower rate.

Even though the stay is scheduled to begin on or after 1 April 2022, if a deposit or full payment is made prior to that date, the booking will be subject to VAT (to the extent of the deposit, not the whole value).

A 5% VAT rate is applied to deposits made before October 1, 2021, and a 12.5% VAT rate is applied to deposits made between October 1, 2021 and April 1, 2022.

Using the 12.5% rate requires issuing a VAT invoice before April 1, 2022 for a stay that begins on or after April 1, 2022.

Attractions

Season tickets purchased after July 15, 2020 will be eligible for the discounted rate, which applied to the majority of the park’s attractions.

In order to maintain the reduced fee, tickets to sporting events were omitted.

As long as the main objective of the visit was to look rather than to drink, a brewery tour may be counted as an educational experience.

Promotional offers up to 31 March 2022

How do you account for VAT if you’re selling a dinner with a free beer?

However, the dinner is eligible for a discounted price, but the alcohol is still set at 20 percent.

Does this imply that you can apply the discounted price to the entire purchase?

Despite the fact that you are giving away free advertising for the beer, you are still generating a profit. To charge two distinct VAT rates, an apportionment based on the entire value of the transaction is required.

Cancellations

When a customer cancels, what happens to the deposit?

The deposit will have been taxed at the rate in effect at the time the deposit was made (usually when payment was received). It is impossible to reduce the VAT notwithstanding the lack of a supply.

Do I have to pass the VAT cut onto my customers?

There is no obligation to pass the price reductions on to your customers, but some businesses have taken advantage of this as a marketing opportunity.

On March 31, 2022, it’s time to brush up on VAT tax points in order to make the most of the reduced rate.

Further information

Additional details can be found in:

In-house catering and takeaway food
(VAT Notice 709/3) Hotels and other places to stay on vacation

We are here to help

For further information on how the decreased VAT rate affects your business, please contact one of our VAT specialists.

Food and drink knowledge hubs and business following Covid hubs offer extra information.