What is happening with the reduced VAT rate for hospitality and holiday accommodation?

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The coronavirus pandemic has had a particular impact on a range of sectors of hospitality and leisure due to the continuous restrictions and lockdowns in the UK. This has led to the introduction of a new reduced rate category for the provision of certain goods and services supplied in the course of catering, holiday accommodation and admission to shows and other attractions.

The reduced rate of VAT is only temporary and was introduced for the period of 15th July 2020 to 12th January 2021, however, this was changed to the 15th July 2020 to 30th September 2021. The VAT rate for this period is 5% down from the standard rate of 20% but a second tier will also apply for the period 1st October 2021 to 31st March 2022 at a reduced rate of 12.5% will be introduced.

This rate is meant to support the sector in being able to keep costs to customers down whilst still being able to increase gross profit margins to aid the financial recovery. The reduced rate was brought in under the Finance Bill 2021 spearheaded by the Chancellor.

HMRC has provided guidance on the temporary VAT reduction and provides that the reduction applies to:

  1. Food and non-alcoholic drinks, including all such items consumers on the premises but only hot takeaway items (See Notice 709/1). Off-premises catering services are excluded (See Notice 701/14).
  2. Sleeping accommodation and accommodation for supplies of catering in hotels, inns, boarding houses or similar establishments, holiday accommodation, and caravan and tent pitches (and associated facilities when supplied together) also quality. For holiday accommodation this concerns the licence to occupy holiday accommodation (See Notice 742). Holiday clubs can also include club “points” and reservation fees (See Notice 709/3).
  3. Theatres, circuses, fairs, amusement parks, concerns, museums, zoos, cinemas, exhibitions, and similar cultural events and facilities are also covered with reduced rate. This does not include sporting events but can include planetariums, botanical gardens, and studios or factory tours. This applies to admission fees of these qualifying supplies, as well as any goods supplied as part of the admission fees.

It is also worth reminding yourself of the exempt supplies under the VAT rules of Schedule 9 of VATA 1994 and include supplies relating to:

  • Land and buildings
  • Insurance
  • Finance
  • Education
  • Health and welfare

As always, Legal Utopia assists within its mobile app with tax related queries and resources including VAT and other business taxes.

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