Reminder – VAT Increase 1st October 2021

In July 2020 the VAT rate for hospitality and accommodation businesses was reduced to 5%, but on a temporary basis. From 1st October, there is a VAT increase from this reduced rate to 12.5%. This in an interim level until April 2022, when the VAT rate reverts to the standard UK rate, currently at 20%.

There are bound to be things that you need to change in your business, and if you haven’t already got your ‘to-do’ list together you need to do that quickly!

Who did the VAT reduction apply to?

1. hospitality

• restaurants
• cafes
• pubs
• more guidance from HMRC here

2. hotel and holiday accommodation

• hotels
• bed and breakfast
• boarding houses
• holiday accommodation
• caravan and camp sites
• more guidance from HMRC here

3. admissions to certain attractions

the reduced VAT rate only applies to entry to attractions such as:

• a planetarium
• botanical gardens
• studio tours
• factory tours
• not sporting events
• more guidance from HMRC here

What does the temporary VAT rate cut apply to?

1. hospitality

• eat in:
  • hot and cold food
  • hot and cold non-alcoholic drinks
•  take-away:
  • hot food
  • non-alcoholic drinks

2. hotel and holiday accommodation

• sleeping accommodation, including bathrooms, living rooms
• rooms with sleeping accommodation
• rooms provided for catering
• long stays up to 28 days (over 28 days a reduced rate is used – see guidance)

3. admissions to certain attractions

• entry to attractions that are currently 20%
• incidental food and drink can be included in the 5% calculation
• live online performances (if not covered by cultural events exemption)
• not sporting events

Do you have to increase your prices?

This will depend on the decision you made in July last year. There was nothing to force you to pass on the reduction to customers, so that decision will influence what you need to do now.

If you passed on the reduction, then you probably will want to increase prices again now to take account of the increase in VAT.

If you need to put your prices up, do you need to warn customers who may be deliberating on a decision? Think about reminding them that things will change on Friday, which may well encourage some decisions.

What else might you need to consider?

1. Factor in the changes to your cashflow forecast.
2. Update your team to make sure they’re aware of the changes.
3. Do you need to update your website, till or online system to reflect the VAT change?
4. Book the time into your diary to make any changes you need to.

As ever, if you’re unsure of any of the implications of the VAT change, please get in touch. We’re very happy to help, so please don’t hesitate to make contact!