Changes to Hospitality and Tourism VAT in the wake of Covid-19

Hospitality VAT | DHCO Blog

Changes to Hospitality and Tourism VAT in the wake of Covid-19

As part of the Government’s response to the coronavirus pandemic, it was announced at the 2021 budget that there would be a reduced rate of VAT for hospitality, holiday accommodation and attractions. With heavy restrictions on the hospitality and tourism industries, temporary relief was introduced to support businesses severely affected by the pandemic and social distancing measures and assist the re-opening of the economy.


What are the changes to the VAT rates?

Initially, the government reduced the rate of VAT which applies to certain supplies relating to hospitality, hotel and holiday accommodation, and visitor attraction admission to 5% until the 30th of September 2021.

As of the 1st of October 2021, the rate of VAT changed again to a transitionary rate of 12.5%. This rate will apply until 31 March 2022, before reverting to the pre-pandemic rate of 20%. This rate was introduced to assist the most severely impacted businesses and the transition back to the original standard rate of VAT.


Which businesses do these reduced rates apply to?

The reduced rates of 12.5% until 31 March 2022 apply to the following categories:

– Food and drinks sales – this applies to pubs, restaurants, cafes, and fast-food takeaways, however, does not apply to the sale of alcohol.

– Holiday accommodation – this includes holiday cottages, hotels, caravan parks and campsites.

– Visitor attraction admission.


How will this affect my business?

For many businesses, the change on the 1st of October 2021 and 31st March 2022 is as simple as changing the VAT code on their accounting software. However, if your business raised or received payment before the 1st of October 2021, the sales were subject to the VAT rate in force at the time of the invoice or payment date, instead of when the goods and services were consumed. This is important to note for when the VAT rate transitions back to 20% on 1st April 2022.


Have any other VAT rates changed?

As of the 1st of October, the following FRS rates apply:

– For catering services including takeaways and restaurants, the rate will increase from 4.5% to 8.5%.

– For hotels and accommodation, the rate will increase from 0% to 5.5%

– For pubs, the rate will increase from 0% to 4%.


Our team of expert advisers at Douglas Home and Co have specialist knowledge of all taxes and accounting compliance. They offer a director-led service ensuring proactive, practical advice for all tax queries and changes. If you have any questions, please get in touch with our team by emailing mail@dhco.co.uk.

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