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Accounting and bookkeeping: A guide for sole traders
TAX AND PENSIONS
Understanding the new 12.5% VAT rate
VAT rates for the hospitality, holiday accommodation and attractions industry are changing. In this article we’ll run through the upcoming change to the rate, who it affects, and how QuickBooks will help you and your client stay compliant with the rate.
What’s changing?
A new 12.5% VAT rate will be introduced from 1 October 2021 for hospitality, holiday accommodations and attractions. It will stay in place until 31 March 2022.
It replaces the current temporary reduced rate of 5% which was introduced on 8 July 2020 to encourage people back to the sector following the COVID-19 lockdown.
Affected businesses will go back to the standard rate of 20% from 1 April 2022.
Who’s affected?
VAT registered businesses that make certain supplies relating to hospitality or holiday accommodation, or charge for admission to certain types of attractions.
Hospitality: Suppliers of hot and cold food and non-alcoholic drinks to be consumed on premises (such as cafes, restaurants, pubs) and suppliers of hot takeaway food and non-alcoholic drink to be consumed off premises.
Accommodation: Businesses providing hotel and holiday accommodation, pitch fees for caravan parks and tents and related facilities.
Attractions: Admission to attractions not covered by the cultural exemption. This applies to businesses that make supplies of admissions currently taxable at the standard rate.
This includes:
shows
theatres
circuses
fairs
amusement parks
concerts
museums
zoos
cinemas
exhibitions
similar cultural events and facilities
planetariums
botanical gardens
studio tours
factory tours
Also affected are VAT registered businesses who make any expense transactions within hospitality, holiday accommodation and attractions where the 12.5% VAT rate has been applied.
Considerations
Small businesses may need to consider the following prior to the rate change coming into effect:
Menus and price lists - are prices changing and is the correct VAT rate and amount displayed to customers?
Electronic Point of Sale (EPOS) systems - check with the provider that the new rate will be available in time and what needs to be done to activate it
Other applications - if bridging software or other applications are used within the bookkeeping and accounting process, check that they’ve been updated with the new rate
Staff awareness - make sure any changes to prices and systems are communicated to everyone who will be using them
Website content - are prices and VAT rates listed online?
Admission fees - if they’re changing, where are they displayed?
Ticket prices - changes might be needed to both printed and e-tickets
Pitch fees - if they’re changing, where are they displayed?
Accommodation packages - are there third-party vendors or partners who need to be made aware of any changes?
Deposits
When deposits are taken in advance, VAT will be calculated based on the rate at the time the deposit is received.
Example
On 1 June 2021 a customer books a hotel room for 1 April 2022 and pays a deposit of £100 (inclusive of VAT) at the time of booking. The VAT due to HMRC for this period is £4.76.
From 1 October 2021, the customer pays a further deposit of £100. The VAT due to HMRC on the VAT return for this period is £11.10 (£100 x 1/9).
When are the deadlines?
Here are the dates of the VAT rate changes:
Date | VAT rate |
|---|---|
From 8 July 2020 to 30 September, 2021 | 5% |
From 1 October 2021 to 31 March, 2022 | 12.5% |
From 1 April 2022 | 20% |
Your VAT. Sorted
Accounting software helps you stay on top of VAT. Find out how QuickBooks automates VAT and keeps you MTD compliant.
How is QuickBooks helping?
The 5% reduced rate is already included in QuickBooks. You’ll be able to activate the new 12.5% VAT code from the 20 September 2021.
Where can I get more information?
You can find more detailed information on the upcoming VAT rate changes for hospitality, holiday accommodation and attractions here.
We will update this article as more details become available.
Feel you’re better informed about the VAT rate changes? The QuickBooks blog covers a wide range of business-related topics – it’s all part of our mission to help small businesses grow.
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