The reduced VAT rate for advance holiday accommodation bookings

21 Apr 2021

colourful VAT image

Rural and farming businesses offering holiday accommodation such as cottages, chalets, glamping, caravan and camping pitches and other furnished holiday lets should encourage advance bookings for beyond October 2021 and for 2022 to take advantage of the 5% reduced VAT rate.

The cut-off date for the reduced 5% rate of VAT in the hospitality sector is now 30 September 2021. From then it will increase to 12.5%, which will apply to 31 March 2022. From 1 April 2022 the 20% rate will apply once more.

The ‘hospitality sector’ comprises:

  • Hotel and holiday accommodation including caravan sites and holiday parks.
  • Catering, including meals and non-alcoholic drinks eaten in, hot takeaway foods and hot takeaway drinks.
  • Admission to certain visitor attractions

Nick Hart, Director VAT, Saffery, and a member of the firm’s Landed Estates and Rural Business Group, says:

“For advance bookings made before 30 September, the issuance of a VAT invoice to the booking party on or before that date will mean the supply is subject to just 5% VAT which offers a modest but attractive saving if passed on to the customer, and even bookings taken between 30 September 2021 and 31 March 2022 will benefit from the 12.5% reduced rate if a VAT invoice is issued in that period. 

“The sector is perhaps more accustomed to requesting deposit payments from booking parties, but issuing a VAT invoice for the full value of the supply, in the period when the VAT rate is reduced, is a measure with clear benefits. 

“The phased approach of reintroducing the 20% rate is a welcome move by the Chancellor, as announced in the March Budget, to support a sector severely impacted by the pandemic. It had been suggested the 5% rate for the hospitality sector might have been made permanent and the tourist sector has long pushed for a reduced rate of VAT to be applied, even before Coronavirus. It remains to be seen how well the sector will recover as we come out of the latest lockdown and whether a further extension will be considered should hospitality continue to struggle.

“Interestingly, the introduction of a new reduced rate of VAT of 12.5% would not have been possible whilst the UK was part of the EU VAT system. It will be interesting to see how this new opportunity for flexibility will be utilised in the future by UK legislators.”