VAT – REDUCED RATING for Catering, Hospitality and Accommodation Services

A new, temporary VAT rate applies from 01^st October 2021

Currently, pubs, cafés and restaurants have enjoyed selling hot food for dining in and taking away, and hot non-alcoholic drinks for dining in or taking away at the reduced rate of VAT, currently 5%.  This was a temporary measure to help support the hospitality sector as a whole as the country opened up from the Covid19 lockdown.

The reduced rate also applied to hospitality establishments such as hotels and B&Bs and also cultural events such as museums, theme parks and similar (but not sporting events).

From 01^st October 2021, that 5% rate will increase to 12.5%.

In summary:-

Accounting Technicalities and Risks

The reduced rate of 5% comes to an end on midnight 30^th September 2021.  Then from 01^st October 2021 there is a new reduced rate of 12.5% which will be in place until 31^st March 2022.

Businesses need to ensure that their tills/EPOS are ready for the change as well as ensuring that any data exported from the tills/EPOS into cloud accounting software/business records is correctly recognised at 12.5%.  There will, in effect, be two reduced rates of VAT, one at 5% up to end of September and then a separate reduced rate for 12.5% thereafter.  The risk is in coding all sales to reduced rating but then importing data into accounting software which may only recognise one rate of VAT.  So businesses will need to either create a new VAT code for this 12.5% rate or for those using cloud based software, it is understood a new VAT rate will be made available in the VAT codes section.

The other risk is that for some businesses, this is a VAT rate change mid-VAT return period, so there could be additional work in ensuring the tils/EPOS are updated overnight and ensuring that the VAT return correctly reflects pre October sales at 5% and post October sales at 12.5%.

For businesses using the Flat Rate Scheme, the current 5% reduced rate has a flat rate percentage of 4.5% and this will increase to 8.5% from October when the VAT rate increases to 12.5%.

If you need any help with setting up the new VAT code or transitioning sales over to the new rate, or indeed any other issue relating to the reduced rate of VAT for catering/hospitality, then do please get in touch.