VAT reduced rate
The 5% VAT rate for hospitality has been extended until 30 September 2021. On 1 October 2021 it will increase to 12.5%, before reverting to the normal 20% rate from 1 April 2022.
The following are eligible for these reduced rates:
• food and non-alcoholic beverages sold for on-premises consumption, for example in restaurants, cafes and pubs
• hot takeaway food and hot takeaway non-alcoholic beverages
• sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans or tents and associated facilities
• admissions to the following attractions, if they are not already eligible for the ‘cultural’ VAT exemption:
• theatres, concerts, cinemas
• circuses, fairs, amusement parks, zoos
• museums, exhibitions
• similar cultural events and facilities
Note that alcoholic drinks remain chargeable at 20% throughout.
If you operate a business where some of your sales are eligible for the reduced rates, you are not obliged to pass on this VAT cut to customers. This means that you can keep your gross prices the same and use the tax break to increase profit margins if you feel your prices will still be competitive.
Often, when a tax rate is due to go up, there are ‘anti-forestalling’ rules to stop customers benefitting from the reduced rate by paying in advance for facilities that they will enjoy once the rate has gone up. However, HMRC has stated that there are no plans to introduce any anti-forestalling rules before the VAT increases take place. This means that a customer can, for example, pay for holiday accommodation in September 2021 that will not be used until April 2022, but only pay 5% VAT.
Dealing with changing VAT rates produces various complications for businesses, including updating tills and making sure VAT returns contain correct figures. If things go wrong it can lead to extra VAT and penalties being due.
We can help you avoid such problems, so talk to us if you have any concerns about the changes.