Are you ready for another VAT rate change in the hospitality and tourism sector?

On 8 July 2020, in order to boost hospitality and tourism sectors the Chancellor announced a temporary 5% reduced rate of VAT for certain supplies.  This was very welcome news for a sector hit hard by Covid.

The reduced rate was initially introduced for a temporary period between 15 July 2020 and 12 January 2021. However, it was subsequently extended to 31 March 2021.  At Budget 2021, the Chancellor announced that the 5% reduced rate would be extended again until 30 September 2021.  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%.

For example, if a customer books a hotel room for May 2022 on 15 September 2021 and pays a deposit of £200 at the time of booking, the output tax (5% VAT) on the VAT return for this period is £9.52 (£200 x 1/21).

If in November 2021, the customer pays a further deposit of £100. The output tax (12.5%) due on the VAT return for this period is £11.10 (£100 x 1/9).

If you use the flat rate scheme, the current temporary rate will also change on 1 October 2021.

Businesses in the hospitality sector will not only need to make sure that they plan their cashflow in advance but also make sure the correct VAT is payable. For example, a hospitality business whose VAT return ends on 31 October 2021, will have 2 different VAT rates (5% until 30 September 2021 and 12.5% from 1 October 2021) being applied on the same types of services in a single quarter.

Our VAT team will be happy to provide any assistance you need to make sure that your software is calculating the correct VAT. Contact us at support@garbutt-elliott.co.uk