Back in July 2020, the Government announced that it intended to put a temporary 5% reduction on VAT in certain hospitality and tourism sectors. The aim was to support businesses and protect 2.4 million jobs following the lifting of the COVID-19 lockdown. This is just a quick reminder that the VAT rate will revert back in a couple of months. Here are the main points that you need to keep in mind.
- The temporary 5% VAT rate as regards the supply of accommodation, food and non-alcoholic drinks within the hospitality sector comes to an end on 1st October 2021, to be replaced by a new temporary rate of 12.5% until 1st April 2022 when it reverts back to the standard rate of 20%.
- The hospitality sector can include hotels, holiday camps, caravan parks, restaurants, local attractions, cafes etc.
- Advance payments, before 1st October 2021, for a supply of goods and/or services that happen after that date will attract the 5% VAT rate and not 12.5%.
- This is an opportunity to certainly improve the cash flow for a sector which has been under the cosh for over a year by encouraging potential customers to pay in advance before 1st October.
- If the hospitality business quotes VAT inclusive prices for their services then it could not only be a cash flow advantage but an increase to their bottom line profit to get the payment upfront pre 1st October.
If you need a hand with making sure you're charging the right rate of tax or any other accounting services, we can help. We're accountants based in the East Midlands and we support businesses and individuals throughout the UK. Get in touch to find out how we can help you.