Imminent VAT change on hospitality supplies

As of 1^st October, the VAT rate for hospitality changes to 12.5%. This will have an impact on both businesses in those sectors, and those organisations able to recover VAT on employee expenses.

Since 1 July 2020, a VAT rate of 5% has applied to:

• on-premises catering and non-alcoholic drinks sold with catering
• hot takeaway food and drinks
• admissions to attractions including theatres and amusement parks
• hotel and holiday accommodation.

This was a temporary measure designed to assist the hospitality sector at a very difficult time. Instead of returning to 20% in one go, the VAT rate applying to these goods and services will move to 12.5% from 1^st October 2021 until March 2022 when the current intention is for the rate to return to 20%.  Clearly this only applies where the standard rate applied pre July 2020.

Suppliers

Anyone supplying these goods or services needs to prepare their tills and accounting systems to reflect these changes. Consideration will also need to be given to how much of the increase to pass on to customers.

Those affected will not be limited to suppliers in the hospitality sector. It will also impact on organisations in the care and education sector selling meals to visitors for example.

As 1 October 2021 falls on a Friday, alteration to prices and systems may need to be made overnight.

Consideration will need to be given to ensuring that the correct tax point is used for those supplies made around the time of the rate change. The tax point is generally the earlier of invoicing, payment or provision of the goods or services. For most hospitality supplies this will be the same date. However, if an invoice is issued within 14 days of this basic tax point, the invoice date becomes the tax point. This therefore means that, in some cases it will be possible to invoice a customer ahead of the future changes in October 2021 and in March 2022 and secure a lower rate of VAT to be charged than would otherwise be the case.

Customers

If you recover VAT on employee expenses for hotels and meals etc., you will need to ensure that your systems are set up to accommodate the VAT rate change. Most organisations will need to create another VAT code in their accounting systems and inform their purchase ledger staff to be on the lookout for the VAT rate applied to these costs.