Posted On : 2020-10-08
The temporary reduced standard VAT rate of 5% for the tourism and hospitality sector was due to end on 12 January, but has now been extended to 31 March 2021.
With Covid-19 restrictions continuing for the foreseeable future, this winter is likely to be quite challenging for many tourism and hospitality businesses, so the extension will be welcomed across the sector.
The current reduced rate applies to food and non-alcoholic drinks from restaurants, pubs, bars and cafes. Holiday accommodation and admission fees to tourist attractions are also included.
Businesses can choose to pass on the VAT reduction to customers and benefit from increased footfall or pocket the savings.
Flat rate scheme
Flat rate percentages have been correspondingly reduced and these will also continue through to 31 March 2021. For example, the rate for restaurants and takeaways has been cut from 12.5% to 4.5%. Given the reduced rates do not apply to alcohol sales, any decision on joining or leaving the flat rate scheme is currently quite complex. Professional advice is essential. Please contact your account manager directly or if you are not Greystone Accountants' client, please Contact our Birmingham or Walsall office.
The use of the flat rate scheme eliminates these anomalies, as just the one rate is used across a business sector.
The government has also introduced an interest-free payment window for any VAT payments deferred from 20 March to 30 June 2020. Instead of paying the full amount by March 2021, businesses will now be able to make 11 equal instalments over the 2021/22 financial year.
Full details of HMRC guidance can be found here.