skip to Main Content

VAT rate for the tourism and hospitality sector and other VAT highlights from the Budget 2021

The temporary 5% rate of VAT available for the tourism and hospitality sector has been extended again by six months to 30 September 2021. A new 12.5% rate will then be introduced for six months to 31 March 2022 to help businesses transition back to the standard rate from 1 April 2022.

This will be welcome news to many businesses in the sector as they look to reopen in the coming weeks.

The temporary 5% rate was initially introduced from 15 July 2020 to support businesses and protect jobs as we eased out of the first lockdown and applies to supplies of:

  • food and non-alcoholic beverages sold in restaurants, cafes, bars etc
  • hot takeaway food and hot non-alcoholic beverages
  • sleeping accommodation in hotels, holiday accommodation, pitch fees for caravans and tents, and associated facilities
  • certain admissions to theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities

Many in the industry have been lobbying for years for the Government to introduce a lower VAT rate in this sector to be in line with some other countries in the European Union. Following Brexit, the Government is less restricted on changing VAT rates so it will be interesting to see what happens over next 12 months and if, perhaps, the 12.5% rate is made permanent.

The reduced rate has raised a number of queries and concerns surrounding the meaning of premises, food, tax points and VAT accounting – please see our FAQs here. 

No increase to the VAT registration threshold until 2024!

The Chancellor announced that the VAT registration and deregistration thresholds will not change until 31 March 2024. The rates have not changed since the last increase in 2017.

It is reported that the measure is expected to have a significant impact on businesses with a turnover just below the VAT registration threshold and with small businesses expected to be reaching that threshold by 31 March 2023.

The UK has the highest VAT registration threshold compared to other countries and following a consultation back in 2018 on the current design of the VAT registration thresholds, it is very possible that they could even be reduced in 2024 bringing more businesses into the VAT regime.

Extension of Making Tax Digital for VAT (MTDfV)

As previously announced, the Chancellor confirmed that MTDfV will be mandatory for all VAT registered businesses from their first VAT period starting on or after 1 April 2022.

Since the introduction of MTDfV in 2019, businesses that are voluntarily VAT registered have not been required to file their VAT returns under the regime. MTDfV requires a business to keep VAT records digitally and file returns through compatible software.

There are various complexities with the regime and our FAQs are a useful document to answer many of these:

MTD for VAT Factsheet 1

MTD for VAT Factsheet 2

MTD for VAT Factsheet 3

Other indirect taxes roundup:

  • New rules on the late payment penalty regime for VAT are set to be introduced from 1 April 2022
  • New rate increased from 1 April 2022 for Air Passenger Duty and Climate Change Levy
  • The standard Landfill Tax rate increases to £96.70 per tonne from 1 April 2021. The lower rate increase to £3.10 per tonne
  • The planned increase to Alcohol and Fuel duties has been frozen for 12 months
FEATURING: Becky Hayes
Becky advises family businesses, companies and individuals on a broad range of VAT and SDLT matters. Becky’s particular specialisms include land and property, company reconstructions… read more
Back To Top