If you’re a VAT registered business, check if you can temporarily reduce the rate of VAT on supplies relating to hospitality, accommodation, or admission to certain attractions.
As announced at Budget 2021, the temporary reduced rate which applied to tourism and hospitality ended on 31 March 2022.
From 1 April 2022 the normal VAT rules apply, and VAT should be charged at the standard rate.
For accounting purposes, the reduced rate had applied as follows:
5% from 15 July 2020 to 30 September 2021
12.5% from 1 October 2021 to 31 March 2022
The government made an announcement on 8 July 2020 allowing VAT registered businesses to apply a temporary reduced rate of VAT to certain supplies relating to:
- hotel and holiday accommodation
- admissions to certain attractions
The temporary reduced rate applied to supplies that were made between 15 July 2020 and 31 March 2022.
These changes were brought in as an urgent response to the coronavirus (COVID-19) pandemic to support businesses severely affected by forced closures and social distancing measures.
If you supply food and non-alcoholic beverages for consumption on your premises, for example, a restaurant, café or pub, you’re currently required to charge VAT at the standard rate of 20%. However, when these supplies were made between 15 July 2020 and 31 March 2022 you only needed to charge the reduced rate of VAT.
You were also able to charge the reduced rate of VAT on your supplies of hot takeaway food and hot takeaway non-alcoholic drinks.
More information about how these changes apply to your business can be found in Catering, takeaway food (VAT Notice 709/1).
Hotel and holiday accommodation
You also benefited from the temporary reduced rate if you:
- supplied sleeping accommodation in a hotel or similar establishment
- made certain supplies of holiday accommodation
- charged fees for caravan pitches and associated facilities
- charged fees for tent pitches or camping facilities
More information about how these changes apply to your business can be found in Hotels and holiday accommodation (VAT Notice 709/3).
Admission to certain attractions
If you charge a fee for admission to certain attractions where the supplies are currently standard rated, you only needed to charge the reduced rate of VAT between 15 July 2020 and 31 March 2022.
However, if the fee you charge for admission was exempt that will take precedence and your supplies will not qualify for the reduced rate.
More information about how these changes apply to your business can be found in VAT on admission charges to attractions.
The Flat Rate Scheme
If you are a small business and use the Flat Rate Scheme to simplify your VAT calculations, you should be aware that certain percentages have been reduced in line with the introduction of the temporary reduced rate of VAT.
More information can be found in VAT Flat Rate Scheme.
The Tour Operators Margin Scheme
If you are a business that buys in and resells travel, accommodation and certain other services, and you act in your own name, you may operate the Tour Operators Margin Scheme to simplify your calculations.
Further information about how the introduction of the temporary reduced rate of VAT will affect your calculations can be found in Tour Operators Margin Scheme (VAT Notice 709/5).
Accounting for supplies that straddle the temporary reduced rate
In most cases, you will simply account for VAT at:
- 5% for supplies made between 15 July 2020 and 30 September 2021
- 12.5% for supplies made between 1 October 2021 and 31 March 2022
However, there may be situations where you received payments or issued invoices before 15 July 2020 for supplies that took place on or after 15 July 2020.
More information about this can be found in sections 30.7.4 to 30.9.2 of VAT guide (VAT Notice 700).
Catering businesses using retail schemes may have to alter their accounting systems for the period 15 July 2020 to 31 March 2022.
If you have a bespoke retail scheme agreement, you should review it and if you think an alteration is needed, contact your large business Customer Compliance Manager, or if you are not a large business customer you should contact Kamran.Hussain@hmrc.gov.uk.
Catering businesses operating the catering adaptation
If you have a turnover of between £1 million and £130 million and are using a catering adaptation method previously agreed with HMRC you may alter the scheme without prior agreement for the period providing the calculation gives a fair and reasonable result. You must then revert back to your previous scheme.
You should keep the records of how you altered the scheme as part of your business records.
Read section 7 in Notice 727 to find out more about catering adaptation.
Caterers using the direct calculation scheme
If all your sales are at the reduced rate then the reduced rate will apply to your daily gross takings during the period.
If you have mixed supplies and your till is not programmed to account for different rates then you may adopt the principles of the direct calculation scheme, if appropriate, to the standard rated goods. Otherwise you should make a fair and reasonable apportionment and retain your workings as part of your business records.