New reduced VAT rate for hospitality and leisure businesses

04/10/2021.
From 1 October, until 31 March 2022, a new reduced rate of 12.5% VAT for hospitality and leisure businesses comes into effect. This replaces the temporary reduced rate of 5% that was applied from 15 July 2020 to 30 September 2021.

This change in rate will impact several businesses in the sector including:

Restaurants/cafes/takeaway vans etc.
Hotels/B&Bs/holiday parks/camping sites that let pitches for tents
Theatres/cinemas
Circuses
Exhibitions
Zoos/museums

The reduced rate does not affect sales of alcohol, even as part of a meal – the alcohol remains subject to VAT at 20%. It also doesn’t override cultural exemption, so some zoos/museum admission fees will still be exempt from VAT.

What are the potential issues to be aware of?

A new 12.5% code will be required in your accounting software
VAT periods 10/21 and 11/21 will have both 5% and 12.5% VAT rates in use
Vouchers:
- If a single-purpose voucher (“SPV”) was sold between 15 July 2020 and 30 September 2021, VAT at 5% should have been accounted for but if redeemed after 30 September, the VAT rate applicable should have been 12.5% (if redeemed up to 31 March 2022) or 20% if redeemed after 1 April 2022.
- Licensed restaurants (for example) may have sold vouches as SPVs since 15 July 2020. This would be incorrect if the voucher could be used against food and alcohol.

How we can help

If you would like to discuss how the change in VAT rate impacts your business with one of our experts please get in touch via the contact form below.

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