Hospitality VAT rate change from 1 Oct 2021

In accordance with the March 2021 budget, the UK VAT rate applied to certain supplies relating to tourism and hospitality increased from 5% to 12.5% with effect from 1 October 2021. Various key matters in respect of this change are summarised below.

Hospitality VAT Rate Change

On 15 July 2020, in response to the economic impact of the Coronavirus pandemic, the government introduced a temporary reduced rate of VAT of 5% for certain supplies relating to hospitality, hotel and holiday accommodation, and admission to certain attractions.In Budget 2021, it was announced that this reduced rate of VAT would remain in place until 30 September 2021, and from 1 October 2021, a new reduced rate of 12.5% would be introduced. The normal standard rate of VAT of 20% will return on 1 April 2022.

Supplies Affected

The supplies affected by the increase in VAT rate include:

Hospitality: supplies in the course of catering including supplies of hot and cold food and drink to be consumed on the premises and supplies of hot takeaway food and drink to be consumed off the premises.

Accommodation: the provision of hotel and holiday accommodation, pitch fees for caravan parks and tents and related facilities (including rooms hired for catering purposes).

Attractions: admission to attractions where the VAT cultural exemption does not apply.


Time of Supply – General Rule

The time of supply rules determine when a supply is made for VAT purposes and thereby what VAT rate shall be applicable to a supply. The basic tax point for the supply of goods is the date they are removed from the supplier to the customer. The basic tax point for services is the date the service is performed (i.e. date all work is completed except for invoicing).

This basic tax point can be extended to the date of the VAT invoice, where the VAT invoice is issued within 14 days (or longer as HMRC may agree) of the removal of the goods or the completion of the service.  Where payment is received or a VAT invoice issued prior to the basic tax point, this earlier date becomes the relevant date for VAT accounting purposes.


Anti-Forestalling Legislation

No anti-forestalling provisions are expected to be  applied when the rate increases from 1 October 2021. This is consistent with how the reduced VAT rate of 5% was implemented in July 2020.


Supplies Spanning 1 October 2021

If part of the supply has been provided prior to 1 October 2021, then it is possible to apportion the applicable VAT rate between the proportion of the supply which takes place prior to the VAT rate change, and that portion of the supply which takes place after the change in VAT rate.


Accounting Software

As the hospitality VAT rate of 12.5% is entirely new, businesses will need to ensure their accounting software has updated or is adjusted in order that VAT can be accounted for at the new VAT rate.  For any queries in relation to accounting software and the new VAT rate change, do not hesitate to contact your usual GMcG contact.


Transitional Rules

When payment is received prior to 1 October 2021, or a VAT invoice is issued prior to 1 October 2021, a business may opt to charge VAT at 5% even if the supply is to be made on or after 1 October 2021 which may ease administration.


Other matters

Flat Rate Scheme

New flat rate scheme percentages will apply from 1 October 2021:

Catering services, including restaurants and takeaways                 8.5%

Hotel or accommodation                                                                                   5.5%

Pubs                                                                                                                                4%


If deposits are received in advance of a supply, output tax will be calculated on the VAT rate in place at the time the deposit is received.

VAT Inclusive Prices – VAT Fraction

The VAT fraction of 1/21 applicable to the 5% VAT rate changes to 1/9 for the 12.5% VAT rate.


GMcG Chartered Accountants provides VAT consultancy services to the hospitality sector and has extensive experience in assisting all businesses with changes in VAT compliance legislation.

For more information, do not hesitate to get in touch with your usual GMcG contact or any member of our team listed below.

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