Temporary reduced rate of VAT set to change for supplies of catering, holiday accommodation and admissions to attractions from 1st October

Whilst there will be a change to the temporary reduced rate from the end of this month, it is not due to cease altogether.

What is changing?

Whilst there will be a change to the temporary reduced rate from the end of this month, it is not due to cease altogether. In March 2021, the Chancellor confirmed that the temporary reduced rate for catering, holiday accommodation and admissions to attractions would be extended by a further year to the end of March 2022 – however this will be in two tranches:

  • Extend the period covered by the reduced rate of VAT at 5% until 30th September 2021.
  • Increase the temporary reduced rate to 12.5% from 1st October 2021 to 31st March 2022.
  • Supplies are then due to revert to the standard rate of 20% from 1st April 2022.

What do I need to do now?

If this affects you, you will need to prepare for the increase in rate from 5% to 12.5%. A supply of holiday accommodation is a single supply of services; the basic tax point is completion of the service, but this can be overridden by the creation of an actual tax point.

An actual tax point is created by a pre-payment, advance issue of a VAT invoice, or issue of a VAT invoice after, but within 14 days of the basic tax point.

So, where you take a booking either with a payment of a deposit of payment in full between now and 30th September (inclusive) this creates an actual tax point (in the case of a deposit, the tax point is created only to the value of that payment) even if the stay is due to take place on or after 1st October 2021.

Tip

You can benefit from the 5% rate for all payments received before 1st October, even if the holiday takes place after the rate has increased.