VAT Rate Scheme Update

What is Value-Added Tax (VAT):

A value-added tax (VAT) is collected on a product at every stage of its production during which value is added to it, from its initial production to the point of sale. The amount of VAT that the user pays is based on the cost of the product, less any costs of materials used in the product that has already been taxed at a previous stage.

Curent Update:

From 1 October 2021 to 31 March 2022, the temporarily reduced rate will be increased from 5% to 12.5% and will then end so that affected supplies revert to 20% VAT from 1 April 2022.

VAT-registered businesses in the hospitality industry will need to ensure that their tills and accounting systems are set up correctly to apply the increased rate of 12.5% from 1 October 2021 and then 20% from 1 April 2022

Affected supplies:

As a reminder of those supplies to which the temporarily reduced rate applies:

1. Food and non-alcoholic beverages are sold for on-premises consumption.
2. Hot takeaway food and hot takeaway non-alcoholic beverages.
3. Sleeping accommodation in hotels and similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.
4. Admissions to tourist attractions such as theatres, museums, cinemas, historic houses, fairs, amusement parks, and similar cultural events and facilities.

Calculating VAT at 12.5%:

To calculate the VAT element of a VAT inclusive supply that is subject to 12.5% VAT.
For example, the supply of a hotel room with a VAT inclusive price of £90 has a VAT element as follows:

£90 x 12.5/112.5 = £10

VAT Flat Rate Scheme (FRS):

These businesses may now want to consider re-joining the scheme in October or April as the FRS rates will be adjusted as follows from 1 October:

• Catering services including restaurants and takeaways – 4.5% will increase to 8.5%.
• Hotel or accommodation – 0% will increase to 5.5%.
• Pubs – 1% will increase to 4%.

The rates will then increase again to their pre-July 2020 levels from 1 April 2022.