Upcoming VAT Changes for Hospitality

The temporary 5% VAT rate for tourism and hospitality businesses will come to an end on 30th September 2021. The reduced rate was previously extended for an additional 6 months earlier this year to give further support for a sector hit hard by the coronavirus lockdowns.

The increases in VAT will be incremental over the next six months. A new 12.5% VAT rate will apply from 1st October 2021 to 31st March 2022. From 1st April 2022 the standard 20% rate will apply.

Businesses will need to ensure that their booking and till systems are set up for the 12.5% rate and the switch from 5% is made at the correct time. Many accounting packages will need to be updated beforehand to ensure that there is a 12.5% VAT rate available for selection.

For Businesses accounting for VAT using the flat rate scheme there will also be changes from 1st October 2021. Specifically, Catering will go up to 8.5% and hotels & accommodation will go up to 5.5%. On 1st April 2022 they will return to the higher, early-2020 levels. The changes will mean any flat-rate accommodation provider will have to start paying VAT on bookings from 1st October 2021 (previous reduced flat-rate was nil).


There is a planning opportunity for all accommodation providers. In many cases it would be beneficial to encourage bookings and payment before 1st October 2021 to ensure the reduced rate of VAT applies. The savings are likely to be slim on an average booking, so any early booking incentives should be considered on a case by case basis. This will ensure the benefit of obtaining the lower rate outweighs any incentive offered for early booking, taking into account the associated marketing costs.

With the upcoming changes it is important to review prices and margins to ensure that profits are where they need to be. There have been well documented increases in food prices and the minimum wage this year which to date may have been offset by the VAT reduction. It is important to plan in advance to ensure these increased costs are covered.

If you need assistance with setting up your systems to account for the new tax rates, or planning to ensure your business remains profitable, please contact your client advisor.