VAT Rate reverts to 20% from 1 April 2022

The VAT rate for hospitality and accommodation businesses was reduced to 5% in July 2020, and increased to 12.5% in 1 October 2021. From April 2022 the VAT rate will revert to 20%.

  • this post was originally created in September 2021 for the increase to 12.5%, and has been updated for the new increase to 20% from April 2022.

What do you need to do now?

Bear in mind that 1 April 2022 is a Friday, and is likely to be a busy day for your business.

So make sure that you’re ready ahead of time for these changes, and that you have made a plan!

Also ensure that your team are up to date with the changes, and what needs to be done.

Things to consider:

If you’re using any kind of till, or online booking system, this will need to be updated ahead of time for the VAT rate changes.

  • Everything that is currently 12.5% will need to be changed to 20%.
  • Top tip: if you had a list of prices that had to change to 12.5% from 5%, use this, and update for any new products or services.
  • Best practice is to include your prices to your customers, you can’t afford to absorb this increase yourself.
  • Can your online system providers, or till providers do bulk updates for you?
  • If you are making the changes, have you set time aside to do this?
  • Is there someone else in your organisation who can do this for you?
  • Can you outsource this work?
  • Do you need to let your customers know?

How does this affect your pricing?

This depends on the changes you originally made.

The Government didn’t specify whether you should pass on the VAT deduction to your customers, or keep the saving for yourself, so either way is fine.

  • If you passed on the VAT deduction to your customers, your prices will now increase by 7.5% (12.5% to 20%)
  • If you kept the saving for yourself, your VAT payments will increase for your first VAT return after 1 April 2022.
  • Can you affordably promote any special offers to keep customers coming back and ordering from you?

Have you factored in the changes to your cashflow forecast?

A reminder of who and what is affected by the VAT rate change:

Who does the temporary VAT rate cut apply to?

1. hospitality

  • restaurants
  • cafes
  • pubs
  • more guidance from HMRC here

2. hotel and holiday accommodation

  • hotels
  • bed and breakfast
  • boarding houses
  • holiday accommodation
  • caravan and camp sites
  • more guidance from HMRC here

3. admissions to certain attractions

the reduced VAT rate only applies to entry to attractions such as:

  • a planetarium
  • botanical gardens
  • studio tours
  • factory tours
  • not sporting events
  • more guidance from HMRC here

What did the temporary VAT rate cut apply to?

1. hospitality

  • eat in:
    • hot and cold food
    • hot and cold non-alcoholic drinks**
  •  take-away:
    • hot food*
    • non-alcoholic drinks**

*cold food and cold drinks are zero-rated when eaten off the premises, see our earlier blog on VAT on Takeaway Food.

**alcohol remains at 20% for eat-in or take-out

2. hotel and holiday accommodation

  • sleeping accommodation, including bathrooms, living rooms
  • rooms with sleeping accommodation
  • rooms provided for catering
  • long stays up to 28 days (over 28 days a reduced rate is used – see guidance)

3. admissions to certain attractions

  • entry to attractions that are currently 20%
  • incidental food and drink can be included in the 5% calculation
  • live online performances (if not covered by cultural events exemption)
  • not sporting events

Make sure you’re ready!

Get time blocked out in your calendar to manage the changes

Enlist help if you need to!

Get in touch if we can help