Budget 2021 – VAT Rates for hospitality and leisure business

The Chancellor’s Budget extended the current 5% reduced rate for hospitality and leisure business for six months to 30 September 2021 followed by an interim rate of 12.5% before reverting to the standard rate of 20% from 1 April 2022.

The extension will be welcomed by all as many businesses have been able to pass on some savings on to customers whilst retaining a cash flow benefit. The reduced rate does allow for some tax planning opportunities as the tax point for VAT purposes is often substantially different from the actual time of supply. Customers paying now for summer holidays in 2022 can take advantage of the reduced/interim rates even though the date of the holiday is after 1 April 2022 when the rate is due to revert to 20%.

The interim rate may pose additional complexities for businesses’ as many bookkeeping systems will not have a default rate of 12.5% so careful planning ahead of the change will be critical. Advice should be sought to ensure your system can cope with a new rate and our bookkeeping division, EQ Accounting, which has an expertise in most bookkeeping systems would be happy to discuss any queries with you.

Scott Greig, Head of EQ Leisure commented,

“Leisure and hospitality business have shown an incredible resilience and ability to adapt to changing circumstances. These measures will help many businesses coming out of Lockdown but pose their own challenges and EQ would be happy to discuss any issues you or your business encounter.”

Given the number of VAT changes leisure and hospitality businesses have already faced, and those on the horizon, careful planning and marketing will be key as applying the wrong VAT rate can prove costly. There are inherent complexities when dealing with VAT rate changes when taking deposits and balancing payments and we would recommend you seek advice to ensure you are processing these correctly.

For more information or advice based on your circumstances, please get in touch with our EQ Leisure specialists by calling one of our offices or emailing leisure@eqaccountants.co.uk.

Alternatively, if you would like advice on any tax related issues affecting your business, please email our EQ Taxperts.