Financial Matters
With David Frederick FCCA | Marcus Bishop Associates | marcus-bishop.com
When Three Becomes Four The economic effects of the pandemic will be felt long into 2022, well at least until 31st March 2022 for businesses in the hospitality sector and their clients. That probably covers most of the population! The impact into March 2022 is based upon, the arrival of our fourth VAT rate. From 1st October 2021 - 31st March 2022 the rate of VAT on food, accommodation and entry fees to attractions increases from 5% to 12.5%. This forms part of the government’s ongoing package of measures to assist the hospitality sector. However, the increase in the VAT rate has not been widely welcomed by many in the sector. A restaurant owner who last February said, “this VAT increase is not helpful. In a time when we’re struggling with supply chain and staffing issues across the industry, as a result of the wider effects of Brexit and COVID-19. Many of us are still deep in arrears with rent, have Bounce Back Loans and other debt repayments which have been pushed back. An increase from April 2022 would be more appropriate timing, allowing us to grow through the typical bonus Xmas period.” In contrast the owner of an established and long-standing catering company said, “the VAT increase from 5% to 12.5% is going to have a monumental impact on our clients. We have picked up a huge amount of collection and reheat at home by new clients who are taking advantage of the reduction in VAT. Working from a commercial kitchen with overheads it means the wolf that has been kept from the door will now be knocking again!” To aid confusion the VAT rate was reduced from the standard rate of 20% to 5% in July 2020 as part of the government’s business aid package during the COVID-19 pandemic. Therefore, this increase is the government’s gradual step to return the hospitality sector to the standard rate of 20%. Despite the challenges encountered by the hospitality sector of the new 12.5% VAT rate, these businesses face more practical matters. Firstly, the adjustment of their tills to handle four VAT rates and secondly, the added complexity of 28 | SE22 - October 2021
their VAT reporting. This will not only be for the first quarter of the new increase but ongoing. However, hospitality businesses should not neglect the possibility of some VAT planning options and contact their accountant and tax advisors. With our minds on MTD (Making Tax Digital) just around the corner in April 2022; the practical challenges of four VAT rates might just spur the small business community to begin their MTD journey to embrace doing business in the digital age. It is just unimaginable to comprehend how businesses will cope with four VAT rates without a sophisticated sales receipting system. The reduced 12.5% rate VAT applies to the following: 1) Food and non-alcoholic beverages sold onpremises for consumption, for example, in restaurants, cafes and pubs. 2) Hot takeaway food and hot takeaway nonalcoholic beverages. 3) Admissions to attractions that are not already eligible for the cultural VAT exemption including: a) Theatres b) Circuses and fairs c) Amusement parks d) Concerts e) Museums and exhibitions f) Zoos g) Cinemas h) Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities. Sporting events and alcoholic drinks will not be subjected to the reduced VAT rate. The other three VAT rates remain unchanged. Standard rate, 20%, applicable to most goods and services; reduced rate, 5%, applies to certain goods and services (including children’s car seats and home energy); and zero rate, 0%, applicable to certain goods and services, including children’s clothes and most food items. Hospitality businesses using the Flat Rate Scheme will also enjoy a temporary reduced VAT rate. The future is certainly all about VAT in hospitality.
