Hospitality VAT Rates – Paying in Advance?


As part of the Government’s response to COVID-19, the hospitality sector has had a 5% VAT rate since 15 July 2020.  This has included most supplies made by cafes, restaurants, pubs, hotels, members clubs, caravans parks, tourist attractions such as zoos and many others – but it has excluded alcoholic drinks.   The 5% rate will increase to 12.5% on 1 October 2021; and will subsequently rise to the standard 20% rate on 1 April 2022.

The Government has not applied any anti-forestalling legislation in connection to these VAT rate changes.  As a result if a business receives an advance payment before 1st October 2021 for a supply being made on or after this date, it will still be 5% VAT based on the payment date.  HMRC confirmed last year that the absence of anti-forestalling legislation was intended to help the hospitality industry, encouraging advance payments to provide working capital to cash-stretched businesses.

This situation can benefit the supplier – for example, a hotel charging £300 including VAT for a weekend’s bed and breakfast will have a VAT liability of £14.29 if paid before 1st  October and £33.33 thereafter.

It can also benefit the purchaser – for example, where a business is purchasing tickets for a networking dinner taking place after 1st October for £100+VAT.  If the business pays before 1st October they would pay £5 VAT, as opposed to £12.50 VAT after 1st October.

Castletons Accountants

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