Hospitality sector faces rise in VAT as the economy reopens

At the end of September, tourism and hospitality businesses that have enjoyed a reduced rate of VAT will see the amount they pay more than double.

In response to the pandemic, the Government temporarily cut the VAT rate for these hard-hit sectors to five per cent. However, at the start of October, this rate will rise to 12.5 per cent.

First introduced on 8 July 2020, the five per cent reduced VAT rate applied to certain supplies relating to hospitality, tourist attractions and holiday accommodation.

This includes supplies of:

Hot takeaway food and hot takeaway non-alcoholic drinks
Food and non-alcoholic beverages sold for on-premises consumption in restaurants, cafes and pubs
Sleeping accommodation in a hotel or similar establishment
Fees for caravan pitches and associated facilities
Fees for tent pitches or camping facilities
Admissions to attractions such as theatres, amusement parks, concerts, museums, zoos, cinemas and exhibitions

It is believed that to date this measure has cost the public purse around £4 billion in lost revenue, but it has helped many businesses with the difficulties of lockdown and the continuing economic recovery.

The emergency measure was originally due to end on 12 January this year, but was further extended to 31 March and finally, in his March Budget, the Chancellor Rishi Sunak extended it to 30 September.

The new rate of 12.5 per cent will remain in place until 31 March 2022, before increasing again to 20 per cent at the start of April 2022. This is designed to assist those hit hardest to gradually transition back to the full rate of VAT.

How does the change affect pre-booked accommodation?

Businesses supplying pre-booked accommodation or other eligible supplies made before 30 September for periods after this date should apply the five per cent VAT rate

For all bookings made between 30 September 2021 and 31 March 2022 the 12.5 per cent rate should apply, even if the service is supplied after April.

If you are unsure how this change may affect you or your business, please speak to our experienced team today. Hospitality sector faces rise in VAT as the economy reopens