The New VAT Rate For Hospitality Businesses

The new VAT rate for registered businesses on supplies related to hospitality will commence on 1st October 2021, moving on from the temporary reduced rate which came into effect from the 15th July 2020. The temporary reduced rate offered registered businesses a reduced rate of 5% VAT payable, in relation to the impact of COVID-19 on the hospitality industry.

The reduced rate, and new VAT rate from 1st October 2021, affect registered businesses who purchase supplies related to:

  • hospitality
  • hotel and holiday accommodation
  • admissions to certain attractions

The temporary reduced rate of 5% applies to supplies that are made between 15th July 2020 and 30th September 2021. As of 1st October 2021, the new rate of 12.5% will come into effect, which is scheduled to end on 31st March 2022.

What Is The VAT Reduced Rate For Hospitality Supplies? 

The VAT reduced rate offers businesses who acquire hospitality services to reduce their VAT bill. Between 15th July 2020 to 30th September 2021, all supplies were charged at a decreased rate of 5%. These changes were introduced as an urgent response to the coronavirus (COVID-19) pandemic, to support businesses severely affected by forced closures and social distancing measures. As of 1st October 2021, the VAT reduced rate will slightly increase to 12.5% for registered businesses who purchase hospitality supplies or services.

Alcoholic beverages and entry into sporting events are not covered under the reduced rate.

With over 150,000 businesses in the hospitality and tourism industry, totalling over 2.4 million jobs, the reduced rate was designed to offer a helping hand during the challenging economic consequences attributed to the pandemic.

Who Does The VAT Reduced Rate For Hospitality Supplies Affect?

If a business supplies food and non-alcoholic beverages for consumption on their premises, for example, a restaurant, café or pub, they’re usually required to charge VAT at the standard rate of 20%. However, when they make these supplies between 15th July 2020 and 30th September 2021, they will only need to charge 5%. This rises to 12.5% from 1st October to 31st March 2022.

Registered businesses are also able to charge the reduced rate of VAT on supplies of hot takeaway food and hot takeaway non-alcoholic drinks.

Businesses will also benefit from the temporary reduced rate if they:

  • supply sleeping accommodation in a hotel or similar establishment
  • make certain supplies of holiday accommodation
  • charge fees for caravan pitches and associated facilities
  • charge fees for tent pitches or camping facilities

As well as this, if a business charges a fee for admission to certain attractions, where the supplies are currently standard rated, they will only need to charge the reduced rate of VAT between 15th July 2020 and 30th September 2021. This rises to 12.5% from 1st October to 31st March 2022.

However, if the fee charged for admission is currently exempt, that will take precedence and supplies will not qualify for the reduced rate. It’s also worth noting if a small business uses the Flat Rate Scheme to simplify VAT calculations, they should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT.


How To Comply With The VAT Reduced Rate?

All supplies made in relation to hospitality should be outlined in the VAT returns to HMRC. For businesses, this is usually submitted every three months.

We hope this has outlined to you the VAT reduced rate and all information related to the new rate which comes into effect on 1st October 2021. If you require any more information on VAT, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.