From 1 April 2022, businesses in the hospitality and leisure sector return to being subject to the standard rate of VAT, ending the 12.5% reduced rate for certain supplies.
Initially, VAT for various supplies of hospitality, hotel and holiday accommodation, and admission to certain attractions was temporarily reduced to just 5% from July 2020 to support the sector through the COVID-19 pandemic. This reduction was extended before rising to 12.5% in October 2021. Now the rate has returned to normal levels.
In this article, we’ll explain the various implications of this and what it means for businesses in the hospitality and leisure industries.
If you are a small business (annual turnover less than £150,000) and use the VAT Flat Rate Scheme to simplify your VAT calculations, then HM Revenue and Customs (HMRC) has announced that certain percentages that were reduced in line with the introduction of the temporary reduced rate of VAT at 5% and then 12.5% will no longer apply from 1 April 2022. For example, for pubs, the flat rate percentage will be increasing back to 6.5% from 1 April 2022 from the current flat rate of 4%.
If you receive payments or issue invoices before 1 April 2022 for supplies that take place on or after 1 April 2022 then you will have already accounted for VAT at the time when you received the payment or issued the invoice.
In these situations, you have a choice to either account for VAT at the 20% rate on the payments received and invoices issued before 1 April 2022 or to not adjust the rate of VAT from 12.5%.
If you choose to account for VAT at the 20% rate on payments received and invoices issued before 1 April 2022 then you will need to charge your customer the difference of 7.5% VAT by issuing an invoice. There would be no advantage in making this choice as you would be accounting for more VAT.
If you choose to not adjust the rate of VAT from 12.5% before 1 April 2022 then any payment receipts or VAT invoices issued before 1 April 2022 will require VAT to be accounted for at the reduced rate of 12.5% even if the supply (e.g. the holiday is taken) after 1 April 2022.
Therefore, if you receive a deposit on 28 March 2022 for a holiday stay in May 2022 then you still treat the deposit at the rate of VAT of 12.5% because the tax point is when the deposit is received. If you receive the rest of the payment before the holiday stay in May but after 1 April 2022 then 20% VAT will need to be accounted for on that subsequent payment.
Another example would be if you have already received a deposit and then receive full payment on 31 March for a holiday stay in April. The tax point is when the money is received so VAT at the rate of 12.5% will be accounted for on the full price of the holiday.
If you’re a Duncan & Toplis client, please do get in touch with your dedicated adviser if you have any questions, especially if you have queries relating to any supplies that overlap 1 April 2022 and you are unsure whether you should be using the 12.5% or 20% rate of VAT for your supplies. We can also help with any changes you might need to make to your accounting systems.
If you’d like to find out more about how Duncan & Toplis can help you or your organisation, please contact us.