Back in July 2020, The hospitality VAT rate was temporarily cut to aid hospitality businesses that had been hard-hit during the pandemic. The rate was reduced from 20% to 5%. This VAT cut to 5% was to be in place until October 1, 2021. After this date the government then increased the rate to 12.5%. Come April 1st 2022 the current VAT of 12.5% will now be increased to 20%.
This VAT rate applied to catering supplies such as meals and non-alcoholic drinks that were consumed when eating in. The rate also applied to hot takeaway foods and drinks.
Other businesses that benefitted from the cut included hotels and holiday accommodations. The reduced rate also applied to admission to certain attractions such as theatres, cinemas, concerts, and museums.
The increase is set for the 1st April
Over 250 business leaders from both the hospitality and leisure industry wrote a letter to Chancellor Rishi Sunak to urge the government to keep the VAT rate at its current level of 12.5%. They argued an increase to its original amount would cripple already fragile businesses.
However, while there was hope that a reduced rate in VAT would remain indefinitely the government has announced the VAT will revert to 20% from April 1, 2022.
Don’t forget
Your company will have gone through many VAT changes a few times in recent years. As a reminder, you need to ensure that your business is ready to update the point of sales systems to reflect the changes to the increased VAT rate.
Ensuring the VAT rate is adjusted prior to processing any sales on the 1st of April will ensure you are able to provide accurate VAT invoices. Timely changes to your tills will prevent retrospective adjustments to your return, which could impact your profitability.
Secondly, it could be time to consider if the changes to the VAT rate will also require a review of your sales prices to ensure this does not impact your overall profitability. Don’t forget to update your website or menu prices if any changes are required.
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