The temporary 5% VAT rate that has applied to supplies made in the tourism and hospitality sector since the start of the pandemic comes to an end at the end on 30 September. The rate is increasing to 12.5% from 1 October until 31 March 2022; the standard rate will then apply from 1 April 2022.
The change of rate on 1 October 2021 will mean an amendment to you accounting software and possibly prices. Please remember that the 20% rate continues to apply to the sales of alcohol.
The following is a useful but not exhaustive checklist to make sure your business is prepared for the change in the rate.
- Electronic cash machines – reconfigure these or upgrade the software
- Accounting Systems – reconfigure or upgrade third party software such as Xero or Auto Entry
- Invoices/receipts ― reconfigure any invoicing software or create a new invoice template for manual invoices / receipts
- Deposits and supplies spanning the VAT rate change – ensure correct VAT rate is applied. Where deposits and other payments are taken before 30 September 2021 the 5% rate would apply to that supply as that would be the tax point for the supply.
- Manual accounting systems to calculate output and input VAT – ensure that these are reviewed and amended in order to charge the correct amount of VAT and to capture the correct VAT return information. For example, update any formulas in spreadsheets used to calculate the VAT amount due
- Cash accounting systems – ensure that VAT is accounted for at the rate applicable on the date that payment is received and that it is included on the return covering the period in which the payment was received
- VAT flat rate scheme – review your position to see if it remains beneficial to use the scheme. Revised flat rate scheme rates will become effective at the same time, so it would be prudent to establish if there is a chance to use a lower flat rate. The impact on cashflow could be considerable
- Lease Agreements – if your business has entered into any lease agreements etc, where the VAT due on monthly payments is set out in advance (ie an annual invoice is received), action will need to be taken to deal with payments due during the VAT rate change period to make sure that the correct amount of VAT is recovered
Further information is available at https://www.gov.uk/guidance/vat-reduced-rate-for-hospitality-holiday-accommodation-and-attractions.
Please get in touch if you have any questions on how this will affect your business.