VAT rate change – 1st October 2021

On 30th September 2021 the reduced 5% VAT rate for the leisure and hospitality sector which was introduced to help business struggling with social distancing and reduced capacity will come to an end.

From 1st October 2021 a transitional reduced rate of 12.5% will apply before finally reverting to 20% on 1st April 2022.

Further information, including details of the supplies that qualify for the reduced rate can be found here.

Businesses should ensure that their tills and accounting systems are updated for this change, as well as menus, price lists, websites etc. (where the VAT savings had been previously passed onto customers).

1st October 2021 falls on a Friday, so an overnight change may need to be implemented to be ready for the weekend’s trading. Businesses will also have to decide how much of the VAT increase they now pass onto customers.

Where sales invoices are raised or payments are received before 1st October 2021 then the 5% rate will still apply, even when the goods or services are consumed after this date – so there is scope to make advance bookings for hotel stays, Christmas & New Year gatherings etc. up to 30th September 2021 and benefit from the lower rate (as long as a VAT invoice is raised or payment made before the change). This will be particularly beneficial to hospitality businesses who have continued to price on a VAT inclusive basis and can retain the VAT savings on the lower rate.

For hospitality businesses who passed the VAT savings onto their customers, the incentive will be there for people to get bookings in place now for the months ahead.

The above article is for general guidance and informational purposes only and is not intended to constitute legal or professional advice. It should not be taken as specific advice for your own circumstances and relied upon. You are advised to take professional advice before taking any action in relation to the above matters.

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