Hospitality Industry – Increased VAT Rate

Due to the pandemic, on 15 July 2020, the Government introduced a 5% VAT rate for the hospitality industry making supplies of catering, holiday accommodation and admissions to attractions. From 1 October 2021, there will be a further change to the temporary VAT rate as it will increase to 12.5% for 6 months before reverting to the standard 20% rate on 1 April 2022.

Interestingly, there is no anti-forestalling legislation in place and so where either a VAT invoice is raised or a payment is made by 30 September 2021 the 5% VAT rate applies, even if the actual supply takes place at a later date. This is because in the supply of services the basic tax point is the 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.

This means that significant VAT savings can be achieved where payment is made in advance or VAT invoices are raised early. Depending on a business’s agreed terms it may have discretion as to whether it retains this saving or passes it on to the customer.

Note that in the case of a deposit the tax point is created only to the extent of that payment and not for the whole amount. This means that if the supply took place after 30 September 2021 and the balance due is also paid after 30 September 2021 then the 12.5% VAT rate would have to be applied to the balance.