The VAT reduction was originally introduced for the hospitality and leisure industry to support businesses severely affected by the coronavirus pandemic and social distancing measures. The extension of the reduced rate will be a welcome measure to help the sector to bounce back and recover during the period during which it has been unable to trade, particularly as many businesses in this industry will be the last of those who are able to re-open fully under the Government’s roadmap to ease lockdown restrictions.

  1. The Chancellor has announced that the temporary reduced rate will be extended for a further six-month period remaining at 5% until 30 September 2021.
  2. A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022.
  3. The standard rate of 20% will be apply from 1st April 2022.

The rules on the relief remain unchanged. 

The reduced VAT rate applies to most, but not all, types of businesses in the hospitality and leisure sector. 

These are:

1. Hotels and other accommodation

The reduction applies to accommodation ranging from hotels, inns and guest houses through to campsites and holiday parks.

2. Cafes, pubs and restaurants 

The temporary 5% rate of VAT applies to hot and cold food and non-alcoholic beverages for consumption on the premises.

3. Takeaway food and drink

The 5% rate of VAT extends to hot, but not cold (which is zero-rated), takeaway food and beverages, so any establishments selling takeaways need to be able to differentiate between the two.

Outside catering companies are specifically excluded from the temporary measure.

4. Leisure attractions 

Admission charges are the important criteria here as unless there is an admission charge any other form of payment is not encompassed by these rules. The reduction in VAT applies to those leisure providers such as amusement parks, zoos, cinemas, exhibitions, fairs and theatres. 

How will this affect the industry? - We spoke to Chris and James Tanner award winning Restauranteurs of the Barbican Kitchen Plymouth and Kentish Hare South East to get their immediate reaction.

“It now gives the industry a fighting chance and very much needed as it has been terribly hit. The extension of the reduced rate VAT is a lifeline for these businesses who are the 3rd largest employer for the economy of the UK. The next 12-24 months is a crucial period of recovery for everyone. Throughout our entire sector from coffee shops through to exclusive restaurants, the last year has been devastating for the industry and the reduced rate VAT would appear the only route out to any form of recovery”

VAT threshold to remain for the next two years

VAT registration and De-registration thresholds

The VAT registration and deregistration thresholds will not change for 2 years from 1 April 2022.

The taxable turnover threshold for registration purposes will remain at £85,000 until 31 March 2024

The taxable turnover threshold for deregistration will remain at £83,000 until 31 March 2024.

The static position for the VAT thresholds will naturally bring more businesses within the VAT regime boosting the recovery of government funds by increasing those subject to taxes for HMRC.

For a more detailed analysis of specific areas of the Budget please see our specific blogs as they are released over the coming days or join us for our FREE post Budget webinar tomorrow afternoon

By Annette Stone, Personal Tax Manager