It did not take long for the effects\nof lockdown to be felt in the hospitality sector, and while some food and\nbeverage businesses were resourceful in establishing new working patterns to\naccommodate fewer covers, or develop a takeaway offering, the same could not be\nsaid of the hotel and attractions businesses that so many were close to.\n\n\n\nIn July 2020, the Government used\nits Summer Economic Statement to announce a temporary reduction to the standard\nrate of VAT from 20% to 5% for the hospitality sector. The VAT cut was designed\nto encourage a consumer return to the sector.\n\n\n\nIn this Spring\u2019s 2021 Budget, the\nChancellor announced an extension to the timeframe for the VAT cut. The 5% rate\nof VAT will now apply until 30 September 2021. From 1 October 2021 the\nhospitality sector VAT rate is due to increase to 12.5% until to 31 March 2022,\nafter which time it is due to return to the standard rate, currently at 20%. \n\n\n\n Date range \n 15 July 2020 - \n 30 September 2021\n 1 October 2021 \u2013 30 March 2022 1 April 2022 onwards \n VAT Rate\n \n 5%\n \n 12.5%\n \n 20%\n \n\n\n\nThe reduced rate\napplies to the following supplies:\n\n\n\nHospitality\n\n\n\nSupplies\nof food and non-alcoholic beverages for consumption on business premises (i.e.\nrestaurant, caf\u00e9 or pub), also supplies of hot takeaway food and hot takeaway\nnon-alcoholic drinks.\n\n\n\nHotel and holiday accommodation\n\n\n\nSupplies\nof sleeping accommodation in a hotel or similar establishment, in addition to certain\nsupplies of holiday accommodation including furnished holiday lettings and\ncottages. Fees for caravan and tent pitches, and associated facilities.\n\n\n\nAdmission to certain attractions\n\n\n\nWhere businesses charged a fee for admission including standard\nrated VAT to certain attractions, this would benefit from the reduced rate of\nVAT. (However, if the fee charged for admission was currently exempt, then that\ntreatment would take precedence and supplies will not qualify for the reduced\nrate.)\n\n\n\nPreparing for 1 October 2021 and accounting for supplies that straddle the temporary reduced rate\n\n\n\nIn most cases, taxpayers will simply\naccount for VAT at 5% for supplies made between 15 July 2020 and 30 September,\nand at 12.5% from 1 October onwards, with no dramatic impact on input tax\nrecovery. Checks to EPOS systems and VAT reporting in these cases should be\nrelatively simple. \n\n\n\nHowever, there may be situations where\npayments are made, or invoices issued, before 1 October 2021 for supplies that\ntake place on or after 1 October 2021. Where this happens, it is important to\nconsider tax point rules for VAT and ensure the correct rate of VAT is applied.\n\n\n\nBasic tax point\n\n\n\nThe basic tax point for a supply of goods is the date the\ngoods are removed, i.e; sent to, or taken by, the customer. If the goods are\nnot removed, it is the date they are made available for their use. The basic\ntax point for a supply of services is the date the services are performed.\n\n\n\nActual tax point\n\n\n\nIn the case of both goods and services, where a VAT invoice\nis raised or payment is made before the basic tax point, there is an earlier actual\ntax point created at the time the invoice is issued or payment received,\nwhichever occurs first.\n\n\n\n14 Day Rule\n\n\n\nThere is also an actual tax point where a VAT invoice is\nissued within 14 days after the basic tax point. This overrides the basic tax\npoint.\n\n\n\nCash Accounting\n\n\n\nFor businesses using the cash accounting scheme, VAT is\naccounted for when the business receives payment from its customers, unless\nit\u2019s a returnable deposit.\n\n\n\nDeposits\n\n\n\nCare should be taken when accounting for deposits. The VAT\nrules vary depending on the nature of the deposit, particularly where it may be\nreturnable. An\nadvance payment, or deposit, is a proportion of the total selling price that a\ncustomer pays before a supply of goods or services. The tax point will be\neither the date of issue of a VAT invoice for the advance payment, or the date of\nreceipt of the advance payment, whichever happens first. Businesses should\ninclude the VAT due on the advance payment on the VAT Return for the period\nwhen the tax point occurs, at the VAT rate applicable at that time.\n\n\n\nIf the\ncustomer pays a remaining balance before goods are delivered or services are\nperformed, a further tax point is created. This will be either on issue of the\nVAT invoice for the balance, or upon receipt of payment of the balance,\nwhichever happens first. The business then includes the VAT due on the balance\non the return for when the further tax point occurs.\n\n\n\nSummary\n\nIt is an important time to pay attention to VAT accounted for by\nbusinesses in this sector, ensuring that taxpayers correctly applied the 5%\nrate from 15 July 2020, assisting with preparations for the transitional rate\nto come into force on 1 October 2021, and looking forward to the eventual\nreturn to normal in April 2022.