The increase comes as the government prepares to scale back its temporary VAT cut, originally introduced on 8 July 2020 to support this section of industry and protect jobs throughout the Covid-19 crisis
HMRC will expect businesses to pay the higher rate of 12.5% on applicable supplies from 1 October 2021.
Dan Hobbs, partner and VAT specialist at accountancy firm, Carpenter Box, said: “Businesses in the hospitality sector have no doubt benefitted from the temporary reduced 5% rate of VAT. Whilst the increase to the new temporary rate of 12.5% will be costly, it gives businesses some time to adjust before reverting back to the standard rate of 20%.
“From 1 October 2021, the new VAT rate of 12.5% applies to all suppliers of restaurant services, hot takeaway food, holiday accommodation and admission to many attractions. It is important that these businesses are aware of and prepared for the changes.”
He is advising businesses to check and update tills, invoicing and accounting systems ahead of 1 October. These systems are not always easy to adjust when it comes to new VAT rates, so contact equipment or software manufacturers for support if necessary. He added
“Looking forward, currently the Government plans to reintroduce the full VAT rate of 20% to leisure and hospitality from 1 April 2022. This is going to be a critical time for businesses in this sector and it is essential they seek professional assistance should they need it,” Hobbs added.