The hospitality and tourist sectors have been supported through the Covid-19 pandemic by being able to pay a reduced amount of VAT to HMRC in respect of most sales.
The reduced VAT rate was 5% from 15 July 2020 to 30 September 2021 and 12.5% from 1 October 2021 to 31 March 2022. The sales affected by this special reduced VAT rate included:
- restaurant meals;
- hot takeaway meals (not sandwiches);
- hotel and similar accommodation; and
- entrance fees to tourist attractions.
The reduced VAT rate also applied to non-alcoholic drinks taken with a restaurant or café meal eaten in-house, but where the drink was part of a takeaway it had to be hot.
The business was not required to lower its prices to reflect the reduced VAT, so could keep the difference as extra profit.
But that benefit is now ending as the standard rate of 20% is restored from 1 April 2022.
If you operate in these sectors, you should check that your accounting system and point of sale equipment will apply the correct VAT rate from 1 April 2022.
You also need to be particularly careful with the VAT return for the period that straddles 1 April. It may be a good idea to review all VAT returns covering the reduced-rate periods to see if you have overpaid or underpaid VAT. Any such small errors can be adjusted on your next VAT return.
If you need help with this or any other accountancy, tax and business issues, get in touch for a no-obligation discussion – see our Contact Us page for how to reach us.
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