Hospitality and Accommodation VAT Increase
Is your business is in the hospitality or accommodation sector? If so, now is the time to check that you have everything prepared for the upcoming VAT rate change.
What is the VAT rate change?
Currently, the VAT rate on hospitality (food and non-alcoholic drinks), holiday accommodation and admission to certain attractions is set to a reduced rate of 5%.
However, from 1st October 2021, this 5% rate will increase to an intermediate VAT rate of 12.5%
HMRC's guidance can be found here
What do I need to do?
For most businesses, the main task will be ensuring that your POS and booking systems are updated as of 1st October 2021. This is so that the VAT charged on qualifying supplies is set to 12.5% instead of 5%.
Many systems have a simple option of updating the VAT rate applied to a product or service. However, now is the time to contact your provider to check what the process will be to update the VAT rate.
For other businesses, the change could require a wholesale updating of prices to reflect the increased VAT rate. This may mean updating menu’s, websites, mobile app systems etc…
As these tasks can sometimes be more complicated than first thought, it is best to do your research and be prepared ahead of time.
Will this impact my hospitality business?
If your business is able to increase the price of your product or service in line with the VAT change, then the rate increase is unlikely to have a significant impact on your business in terms of profitability.
Any impact is more likely to be short term and largely in the cost of updating your prices and systems to reflect the change.
If your business is one whereby the rate hike will need to be absorbed within your existing pricing, then the increase will definitely hit your business's profitability.
This is because instead of losing 1/21st (5%) of your gross sales price in VAT. You will now need to surrender 1/9th (12.5%) in VAT.
E.g.
If you sell a meal for £10 including VAT on 30th September 2021. You would need to report and pay £0.48 worth of VAT to HMRC
If you sell that same meal for £10 including VAT on 1st October 2021. You will need to report and pay £1.11 worth of VAT to HMRC
This increase in VAT would reduce your profit on that meal by £0.63 (£1.11 - £0.48 = £0.63)
Want to learn more about TidyCloud?
You'll find lots of helpful information in our information pack