From 1st October, the hospitality sector’s VAT rate changes, going from the temporary 5% to 12.5%. A further rate increase to 20% will be effective 1 April 2022.

VAT rate receipt

In July 2020, the VAT rate for hospitality and accommodation businesses was reduced to just 5% due to the onset of the pandemic and subsequent economic fallout. However, now that the UK is beginning to rebuild and look towards the future, this temporary VAT rate has been increased to 12.5%. It will remain at this level until April 2022, when it will then return to the pre-pandemic rate of 20%.

How can you remain VAT compliant?

Those businesses that work with a till or automated online booking/purchasing systems will have to ensure the following, where necessary:

  • 12.5% VAT rate applied to all items on the relevant systems in a bulk alteration
  • Liaise with online system providers to remind and check the update is in place
  • Inform customers of the VAT rate change

How will pricing be affected?

As the Government avoided specifying where and how to implement this rate reduction, there’s no dedicated advice relating to the changes on pricing as a whole. Thus, the effect of this change depends entirely upon how the July 2020 temporary VAT rate reduction was implemented in the first place.

  • In the case that the VAT saving applied solely to the business, VAT payments will increase from October 1st 2021
  • If the VAT saving was extended to customers, prices will now increase by 7.5% to reflect the new 12.5% rate

If the saving was indeed extended to pricing, it may be beneficial to put in place special offers or promotional campaigns to retain customer engagement following the VAT rate rise.

Furthermore, it is imperative that any cashflow projections factor in the increase to VAT across hospitality and accommodation businesses, as well attractions. Across different businesses in the holiday and hospitality sector, certain rules apply to particular elements that may not apply elsewhere. To find out more about this, see here.

Have VAT savings been optimised?

Despite the VAT rate increasing to 12.5%, there is the potential that full advantage of the temporary 5% rate between July 2020 and September 2021 was not taken by businesses. Fortunately, with respect to amended/rescheduled events or bookings made during the rate change period, there are various situations in which the temporary 5% rate may apply. This may also be the case where pre-payments have been taken for future events.

We would be happy to discuss individual circumstances in more detail, offering a no-cost evaluation regarding potential opportunities to revisit historic VAT periods, ensuring maximum benefit of the VAT rate change has been obtained.

Contact Gavin West or Julian Rosser if you would like to find out more about how we can help you to optimise VAT savings or remain compliant in the face of ongoing changes to hospitality VAT rates.