Throughout the pandemic, businesses in the hospitality or tourism sector have been supported by paying a reduced VAT amount to HMRC in respect of most sales. The reduced VAT rate was just 5% from the 15th of July 2020 to the 30th of September 2021, then rose to 12.5% from the 1st of October 2021 to the 31st of March 2022.
Many sales were impacted by this special reduced VAT rate, such as:
- Restaurant meals
- Hot takeaway meals
- Hotel and accommodation bookings
- Entrance fees to tourist attractions
- Non-alcoholic drinks (for dine-in customers)
- Hot drinks (for takeaway customers)
Luckily, businesses were not required to lower their prices to reflect the reduced VAT rate and, as such, could keep the difference as extra profit. However, this benefit is now ending, and as of the 1st of April 2022, the standard rate of 20% will be restored.
How To Prepare For The Increased VAT Rate
Those in any sector affected should check that their accounting system and point of sale equipment are set to apply the standard VAT rate from the start of April. Businesses will also have to be extra careful when submitting the VAT return that straddles the 1st of April – we would happily double-check any figures for you before you submit the return.
Finally, it is recommended to review all VAT returns covering this reduced-rate period to determine whether you have overpaid or underpaid VAT. Any minor errors detected can be adjusted on your next VAT return.