HMRC: UK VAT Hospitality Reduced Rate Ends, Standard 20% Returns

• The temporary reduced VAT rates for UK hospitality, holiday accommodation, and attractions ended on March 31, 2022.
• From April 1, 2022, businesses in these sectors must charge the standard 20% VAT rate on all eligible supplies.
• The relief was introduced on July 15, 2020, at 5%, increasing to 12.5% from October 1, 2021, until its expiry.
• The temporary rates supported businesses severely affected by the COVID-19 pandemic.
• Businesses must update their accounting systems to reflect the return to standard VAT rates.

Lawyers and compliance officers advising businesses in the UK hospitality, holiday accommodation, and attractions sectors must ensure their clients have updated accounting systems to apply the standard 20% VAT rate for supplies made from 1 April 2022, following the expiry of the temporary reduced rates.

Businesses operating within the UK hospitality, holiday accommodation, and attractions sectors were required to revert to the standard 20% VAT rate for all eligible supplies made from April 1, 2022. This change marked the conclusion of the temporary COVID-19 related VAT relief period that had been in effect since July 2020. However, a new temporary 5% VAT rate for certain family-focused hospitality and tourism supplies was introduced from 25 June to 1 September 2026 under the Great British Summer Savings scheme. The return to the standard rate necessitates that all VAT-registered entities in these industries update their accounting systems and practices to ensure compliance with the prevailing tax regulations.

The temporary reduction was initially introduced by the government on July 8, 2020, as an urgent measure to support businesses severely impacted by the COVID-19 pandemic, including forced closures and social distancing mandates. The relief was implemented in two distinct phases for accounting purposes. Initially, a 5% reduced rate was applied from July 15, 2020, through September 30, 2021. Subsequently, this rate increased to 12.5% for the period spanning October 1, 2021, until March 31, 2022. The conclusion of this temporary scheme, and the return to the HMRC VAT standard rate 2022, was formally announced as part of Budget 2021, ensuring businesses had advance notice of the impending change.

The temporary reduced VAT rates specifically applied to a broad range of supplies within the designated sectors. This included food and non-alcoholic beverages provided for consumption on premises, such as those served in restaurants, cafes, and pubs. Additionally, hot takeaway food and hot takeaway non-alcoholic drinks also qualified for the reduced rates during the specified period. Businesses offering holiday accommodation, including hotels and similar establishments, also benefited from the temporary relief, as did those providing admission to certain attractions across GB VAT accommodation attractions.

Detailed guidance on the application of these changes was made available through various official notices. For catering and takeaway food services, businesses could consult VAT Notice 709/1. Information pertinent to hotels and holiday accommodation was provided in VAT Notice 709/3. Furthermore, businesses utilizing the Tour Operators Margin Scheme found relevant details in VAT Notice 709/5, which outlined how the introduction of the temporary reduced rate would affect their calculations. Small businesses operating under the Flat Rate Scheme also saw adjustments, with certain percentages reduced in line with the temporary VAT changes.

With the COVID-19 VAT relief expiry, businesses must now apply the standard 20% VAT rate to all relevant supplies. This transition requires a thorough review and potential alteration of accounting systems, particularly for those catering businesses that utilize retail schemes. If a business had a bespoke retail scheme agreement, it was advised to review and potentially alter it to reflect the reduced rates applied between July 15, 2020, and March 31, 2022, and now to revert to the standard rate.

Compliance officers and legal advisors must ensure their clients are fully aware of these changes and have implemented the necessary system updates. There were specific scenarios outlined for businesses that received payments or issued invoices before July 15, 2020, for supplies that were to take place on or after that date. Guidance for such situations could be found in sections 30.7.4 to 30.9.2 of VAT Notice 700, the comprehensive VAT guide. The overarching requirement is for businesses to accurately account for VAT at the standard rate from April 1, 2022, to avoid any non-compliance issues.

Lawyers and compliance officers advising businesses in the UK hospitality, holiday accommodation, and attractions sectors must ensure their clients have updated accounting systems to apply the standard 20% VAT rate for supplies made from 1 April 2022, following the expiry of the temporary reduced rates.

Source: Original reporting via GOV.UK guidance on VAT changes