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VAT Reduced Rate

VAT reduction for hospitality, holiday accommodation and attractions

A temporary VAT cut within the hospitality and tourism sector has been announced.  The VAT rate will be reduced from 20% to 5% from 15 July 2020 to 30 September 2021, with an interim VAT rate of 12.5% running from 1 October 2021 to 31 March 2022.

Who does it apply to?

This reduction in VAT is intended to boost trade immediately for hotels, B&B’s, cafes, pubs, restaurants, cinemas, zoos and theme parks to name but a few.

The reduced rate of VAT will apply to:

  • hot / cold food and non-alcoholic beverages for consumption on the business premises, for example, cafes, restaurants and pubs. Cold takeaway food continues to be subject to VAT at 20% or 0% under the existing rules.
  • hot takeaway food and hot takeaway non-alcoholic drinks.
  • sleeping accommodation such as hotels and similar establishments, holiday accommodation, caravan and tent pitch fees and associated families
  • admissions to theatres, shows, fairs, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities. If a business charges admission fees that are currently exempt then that will take precedence and the admission will not qualify for the reduced rate. The reduced rate does not apply to admission to sporting events.

How does it work?

From 15 July 2020, all eligible businesses should charge the 5% reduced rate of VAT on takings of supplies made of the goods and services listed above and on issued invoices, until 30 September 2021.  From 1 October 2021 until 31 March 2022 all eligible business should apply the interim VAT rate of 12.5%.

Care will need to be taken where goods and services were supplied prior to 15 July 2020 / 1 October 2021 but invoiced after 15 July 2020 / 1 October 2021, and vice versa.

For example, in some circumstances if a business has received a payment or deposit before 15 July 2020 but supplies the goods or services after 15 July 2020, then the business can choose to charge and account for VAT at 5% by issuing a credit note within 45 days of the rate change.

Flat Rate Scheme Changes

HMRC have updated the flat rate percentages to take account of the new reduced rate for VAT.

As of 15 July 2020 until 30 September 2021 the following sector rates apply:

  • Catering 4.5% (reduced from 12.5%)
  • Hotels 0% (reduced from 10.5%)
  • Pubs 1% (reduced from 6.5%)

From 1 October 2021 until 31 March 2022 the following sector rates apply:

  • Catering 8.5% (interim VAT rate)
  • Hotels 5.5% (interim VAT rate)
  • Pubs 4% (interim VAT rate)

Further detailed guidance can be found on the gov.uk website: https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

<Sep 2021>
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Sep 26

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Since starting to use QuickBooks only a few months ago we are noticing a big difference in the running of our business. Paying suppliers is much quicker and it is very clear exactly what is outstanding at any moment in time. Emma, Kristina and the team at Dodd & Co were very supportive through our transition from paper books. The training was thorough and the many questions we've had are answered very quickly. I highly recommend QuickBooks and the team at Dodd & Co who have made the process very easy.
-- Suzie Dinsdale