A reminder that a new VAT rate of 12.5% comes into force on 1 October 2021.

This is the first time this rate has been used and affected businesses should ensure that they are prepared.

The government announced on 8 July 2020 that it intended to legislate to apply a temporary 5% reduced rate of VAT to certain supplies relating to certain hospitality, supplies.

The reduced rate was initially introduced to last for a temporary period between 15 July 2020 and 12 January 2021. This period was subsequently extended to 31 March 2021.

The government then announced at Budget 2021 that the temporary reduced rate will be extended for a further six-month period at 5% until 30 September 2021.

A new reduced rate of 12.5% will then be introduced which will end on 31 March 2022. The scope of the relief will remain unchanged.

From 1 April 2022 the usual 20% standard rate will apply, unless there are further government concessions.

The 12.5% applies to

• hospitality: supplies in the course of catering including supplies of hot and cold food and drink to be consumed on the premises and supplies of hot takeaway food and drink to be consumed off the premises
• accommodation: the provision of hotel and holiday accommodation, pitch fees for caravan parks and tents and related facilities
• attractions: admission to attractions not covered by the cultural exemption.

The VAT Fractions

This is used to calculate the VAT element of a VAT inclusive figure.

5% = 1/21

12.5% = 1/9

20% = 1/6

Deposits

If a deposit is received, output tax will be calculated on the VAT rate in place at the time the deposit is received.

Other Issues

If a business supplies hospitality services and goods, but also makes sales not covered by the new rate, eg; alcohol, it must be able to identify the values at the different rates.

Does your accounting package have a defined 12.5% tax rate? It may be necessary to add this new rate to your software package.