Extension to the temporary reduced VAT for the Hospitality Sector
On 8 July 2020, the government announced a temporary 5% reduced rate of VAT for certain supplies relating to hospitality, hotel and holiday accommodation and admission to certain attractions. The reduced rate originally was in place between 15 July 2020 and 12 January 2021 and was extended to 31 March 2021.
In the Budget 2021, the Chancellor announced that the 5% reduced rate will be extended again until 30 September 2021 and further that from 1 October 2021 until 31 March 2022, the temporary reduced rate of 5% VAT will change to the new reduced rate of VAT of 12.5%.
The normal standard rate of 20% will therefore return on 1 April 2022.
This is a welcome announcement and will provide a VAT saving for the next 12 months.
The new rate
If you calculate the amount of VAT due to HMRC from cash received, from 1 October 2021, there will be a new VAT fraction. To calculate 12.5% VAT when using cash receipts, you should use 1/9. For example, if a customer books a holiday on 1 November 2021 and pays £126, the output tax due to HMRC is £126 x 1/9 = £14.
|Date||VAT Rate||VAT Fraction|
|15 July 2020 to 30 September 2021||5%||1//21|
|1 October 2021 to 31 March 2022||12.5%||1/9|
|1 April 2022 onwards||20%||1/6|
Flat Rate Scheme
Those of you who use the flat rate scheme, the current temporary rate will also change on 1 October 2021. The changes to the flat rate scheme percentages for affected sectors are:
|Industry||Before 15 July 2020||15 July 2020 to 30 September 2021||1 October 2021 to 31 March 2022|
|Catering services, including restaurants and takeaways||12.5%||4.5%||8.5%|
|Hotel or accommodation||1.5%||0%||5.5%|
If deposits are received in advance of a supply, output tax will be calculated on the VAT rate in place at the time the deposit is received.
For example, on 1 June 2021 a customer books a hotel room for 1 April 2022 and pays a deposit of £100 at the time of booking. The output tax due to HMRC on the VAT return for this period is £4.76 (£100 x 1/21).
On 1 October 2021, the customer pays a further deposit of £100. The output tax due to HMRC on the VAT return for this period is £11.10 (£100 x 1/9).