The reduced rate of VAT to end on 1 April 2022

Updated on July 19, 2022

 

There had been an initial announcement in July 2020 of a decreased tax rate for the hospitality industry in order to help particular businesses during the pandemic, however this has since been changed.

On 1 October 2021 a short-term increase to 12.5 percent VAT was announced, which would last until 1 April 2022, when the rate would return to its original 20 percent level.

Many expected the chancellor to provide additional support for the hospitality industry in the recent Autumn Budget by retaining or possibly reducing the rate to 5 percent indefinitely from its current level of 12.5% 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:

Catering

Currently, the VAT rate on catering goods is 12.5%:

Meals and non-alcoholic beverages consumed in the restaurant, hot takeaway foods, and hot takeaway beverages are included in the reduced pricing. Under the current rules, cold takeaway food is still liable to a 20% VAT or a 0% VAT.

The following types of establishments are exempt from the full price:

It is possible to apply the lower tax rate to eligible supplies made in eateries and other comparable businesses.

Hotel/holiday accommodation

Currently, goods and services are taxed at 12.5 percent.

Travel expenses such as hotel or guest house stays, self-catering holiday rentals and pitches, and vacations in a motorhome or campervan

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Deposits received and VAT invoices issued in advance have the following effects:

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. The 12.5 percent VAT rate will apply if a deposit is paid between 1 October 2021 and 1 April 2022.

A time of supply will be established for the whole value of the supply if a valid VAT invoice is issued, which includes the full amount to be paid. For stays beginning on or after April 1, 2022, the 12.5% VAT rate can be used by issuing VAT invoices in advance.

Admission to certain attractions

Supply type for which the current 12.5 percent VAT rate is in effect:

Entrance fees to various entertainment venues such as museums and zoos as well as amusement parks and fairs.

Admissions that are ordinarily exempt from VAT under the cultural exemption are not affected by the temporary reduced rate. Such admissions, therefore, would remain exempt from VAT.

Other goods or services supplied

The entire supply will be eligible for the temporary reduced rate if the admission payment includes other incidental or supplementary supplies of goods and services (for example, a brochure, tour guide, or activity book). 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.

A temporary reduced hospitality fee may not apply if you charge separately for food and beverages ate on the grounds of the attractions.

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Please contact Sean McGinness, Alison Hone, or Nick Hart for more information on how to maximize VAT efficiency in the hotel sector before the VAT rate reverts back to 20%.