Changes to the temporary VAT rate for the tourism and hospitality sector

In July 2020 the government announced that the VAT rate for the tourism and hospitality sector was to be temporarily reduced from 20% to 5% to boost customer demand and support the industry.

After the 30 September 2021 the temporary VAT rate is set to increase to 12.5% until 31 March 2022 as the sector and the economy recovers, after the 31 March 2022 the rate is to return to 20%. The scope of the reduced rate will not change (hospitality, hotel and holiday accommodation and admission to certain attractions).

Flat rate scheme

For those on the flat rate scheme the current temporary rate will also change. The flat rate scheme sectors that will be affected are as follows:  

Which rate to use?

The 30 September often marks the end of the busiest part of the tourism season where businesses often start to consider the year ahead. As invoices start to be issued for the month or year ahead the VAT rate to use may cause some head-scratching.

The VAT rate used depends on the tax point.

There is a basic tax point, which is the time the services are provided. Services that are supplied over a period of time should be time apportioned.

There are also actual tax points that override the basic tax point:

• Where a VAT invoice is issued in advance (or within 14 days of supply), the output tax would be calculated based upon the VAT rate in place at the time of issuing the invoice. It is important to note that the invoice must be a VAT invoice in order for an actual tax point to arise.

• If deposits are received in advance, the output tax would be calculated based upon the VAT rate in place at the time the deposit is received.

Businesses eligible for the temporarily reduced rate could use the actual tax point in order to use the lower temporary rate before the end of the month.

For further information on this matter please contact a member of the Tax Advisory Team on 08000 664 664.