12.5% Reduced VAT rate for hospitality increasing on 1 April 2022
The last 24 months has been an incredibly challenging period for all UK businesses in the hospitality sector with forced closures, staff shortages and supply issues. However, the temporary reduced VAT rates of 5% initially, and now 12.5%, introduced by the government as a COVID-19 support measure, has certainly helped to lessen the blow.
Under current proposals (albeit this is subject to any announcements in the Spring Statement on 23 March 2022), from 1 April 2022, the temporary reduced rate will end so that affected supplies revert to 20% VAT from 1 April 2022.
VAT registered businesses in the hospitality industry will need to ensure that their tills and accounting systems are set up correctly to apply the increased rate of 20% from 1 April 2022.
There are a number of practical issues to consider and opportunities available to businesses to maximise the benefit of the temporary reduced VAT rates between now and the end of March 2022. Some of these apply to both suppliers and customers so it is also relevant to businesses outside of the hospitality industry.
Affected supplies
As a reminder of those supplies to which the temporary reduced rate applies:
- Food and non-alcoholic beverages sold for on-premises consumption.
- Hot takeaway food and hot takeaway non-alcoholic beverages.
- Sleeping accommodation in hotels and similar establishments, holiday accommodation, pitch fees for caravans and tents and associated facilities.
- Admissions to tourist attractions such as theatres, museums, cinemas, historic houses, fairs, amusement parks and similar cultural events and facilities.
VAT savings for suppliers
There are opportunities for suppliers to maximise the benefit of the temporary reduced rates by bringing forward the “tax point” of the supply so that VAT is accounted for at 12.5% rather than 20%.
This can be done in one of two ways:
1. Receive part or full payment during the reduced rate period for a supply which will take place after the rate increase.
For example, a caravan park is offering pitch fees for the 2022 summer season when the VAT rate will be 20%. If the caravan park receives a deposit and/or full payment before 1 April 2022, they can account for VAT on the amount received at 12.5%. Any balancing payment received after 31 March 2022 will be subject to VAT at 20%.
The caravan park may consider offering an early payment discount to the customer to encourage them to pay before 31 March 2022. This will provide a cash saving for the customer and a VAT saving and cash flow benefit for the caravan park.
2. Issue a valid VAT invoice on or before 31 March 2022.
For example, the owner of a furnished holiday let could issue a valid VAT invoice to their customer on 28 February 2022 for a stay which is due to take place in May 2022. The issue of the invoice creates a tax point for VAT of 28 February 2022, when the VAT rate for holiday accommodation is 12.5%. Even if the customer does not pay all or some of the invoice until after 31 March 2022, the VAT rate can remain at 12.5%.
Crucially, the invoice needs to be raised before 1 April 2022.
VAT savings for customers
For customers who cannot fully reclaim input tax, it may be beneficial to prepay for some hospitality supplies before 1 April 2022, thereby creating a tax point for VAT when the 12.5% rate still applies.
This will only benefit the customer where supplies are advertised on a VAT exclusive basis so that the VAT added to the bill is at the temporary reduced rates, otherwise the VAT saving will be retained by the supplier.
VAT Flat Rate Scheme (FRS)
When the temporary reduced rate was introduced in July 2020, the flat rate percentages for many hospitality related categories were reduced. This led to many businesses leaving the FRS, particularly those that had a lot of 5% VAT sales and relatively few sales at 20%.
These businesses may now want to consider re-joining the scheme (as long as they have been out of the scheme for at least 12 months) as the FRS rates are expected to be adjusted as follows from 1 April:
- Catering services including restaurants and takeaways – 8.5% will increase to 12.5%.
- Hotel or accommodation – 5.5% will increase to 10.5%.
- Pubs – 4% will increase to 6.5%.
If you will be affected by the change in VAT rate from 1 April 2022 and would like to discuss any practical issues or opportunities to obtain a VAT benefit, then please get in touch with your usual contact at RRL.
Business Support Grant – Omicron Hospitality and Leisure Grant – Deadline for applications approaching!
Businesses and organisations should consider whether they qualify for the Omicron Hospitality and Leisure Grant. Please note that eligible businesses need to apply and the application deadline (18 March 2022) is nearing.
The government announced on 21 January 2022 updated guidance to the Omicron Hospitality and Leisure Grant – see here. Some key points are:
- To ease the impact and further restrictions caused by the increase in Omicron cases, the government created an Omicron Hospitality and Leisure Grant that covers the hospitality, leisure and accommodation businesses in England.
- The Omicron Hospitality and Leisure Grant provides support to eligible businesses included on the Valuation Office Agency (VOA) list on 30th December 2021.
- If you believe you are an eligible Cornish business, you can apply via below website where you will find full details and an application form to complete cornwall.gov.uk/omicrongrant
- The application process is currently open and the deadline for applications is 18 March 2022.
- The grant is a one-off payment
- Grants are available at levels of £2,667, £4,000 and £6,000 depending on the business rateable value. You must have an occupied business rated property and the amount you get will be as follows:
| Rateable value | Omicron Hospitality and Leisure Grant |
| £ | Amount |
| 15,000 | £2,667 |
| £15,001 – £50,999 | £4,000 |
| £51,000 or over | £6,000 |
- All eligible businesses will be entitled to receive a grant for each eligible property. Some businesses may receive more than one grant where they have more than one eligible property.
- All grant payments must be disbursed from the Local Authority by 31 March 2022.