The government originally announced a temporary reduced rate for the hospitality industry in July 2020, as one of several measures designed to support certain business sectors during the pandemic.
Further announcements extended the time for which the 5% VAT rate would apply, with the rate increasing to 12.5% on 1 October 2021 for a limited period, before reverting back to 20% on 1 April 2022. It was hoped that the Chancellor may have provided further support to the hospitality sector in the recent Autumn Budget by keeping the rate at 12.5%, or even taking it back down to 5%, indefinitely. However, no such proposals were announced in the Budget and the VAT rate will revert back to 20% on 1 April 2022 as planned.
The 12.5% VAT rate temporarily applies to the following supplies:
Catering supplies currently subject to the 12.5% VAT rate:
The temporary reduced rate covers supplies of meals and non-alcoholic drinks eaten in, hot takeaway foods and hot takeaway drinks. Cold takeaway food continues to be subject to 20% VAT or 0% VAT under the existing rules.
Type of establishment the reduced rate applies to:
The reduced rate can be applied to qualifying supplies made in restaurants, pubs, cafes, and similar establishments.
Supplies currently subject to the 12.5% VAT rate:
Stays in hotels and guest houses, self-catering holiday accommodation, stays in caravans and camping rentals and pitch fees.
Impact of deposits received and advance VAT invoices:
The receipt of the deposit creates a time of supply for VAT purposes and for deposits received before 1 October 2021, the 5% VAT rate will apply to that deposit. If a deposit is received between 1 October 2021 and 1 April 2022 then the 12.5% VAT rate will apply.
Issuing a valid VAT invoice, on which the full amount to pay is included, will create a time of supply for the full value of the supply. Issuing VAT invoices in advance of a stay that is to begin on or after 1 April 2022, would enable the 12.5% VAT rate to be applied.
Admission to certain attractions
Nature of supply to which the 12.5% VAT rate currently applies:
Admission to shows, theatre productions, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas and exhibitions.
The temporary reduced rate does not apply to admissions that are normally exempt from VAT under the existing cultural exemption. Such admissions would therefore continue to be VAT-exempt.
Other goods or services supplied
If the charge to admission includes other incidental or ancillary supplies of goods and services (for example a brochure, tour guide or activity book), then the whole supply will be eligible for the temporary reduced rate. Guidance from HM Revenue & Customs gives an example that, if in the example of a brewery tour, the admission was incidental to the overarching supply of food and drink, then the admission charge may not be eligible for the temporary reduced rate.
If you charge separately for food and drink consumed on the premises at the attractions, then you should consider whether the temporary reduced rate for hospitality would also apply.