VAT rate change for hospitality and tourism sector

UPDATED 05 October 2021

VAT rate for hospitality changes to 12.5% from 1st October.

This explains what to do to use the new 12.5% VAT rate.

About the changes

The UK VAT rate on hospitality, holiday accommodation and attractions is changing from 5% to 12.5%. This will be in place until April 2022, when the STD 20% VAT rate will apply.

This new rate applies to food and non-alcoholic drinks as well as accommodation and admission to attractions across the UK.

Transactions where you have been using the 5% rate will now be at a new rate of 12.5% VAT.

A new 12.5% VAT will be added in Sage Accounting Start called Lower Rate 2, and in most cases you just need to change affected transactions from Lower Rate 5% to the new Lower Rate 2 12.5%.

For detailed information about what's included, see the government support page:

https://www.gov.uk/guidance/vat-reduced-rate-for-hospitality-holiday-accommodation-and-attractions

If you are still unsure whether your transactions should be at the reduced rate, check with your accountant or HMRC.

 

What do I need to check?

Here is a list of all the different areas and transactions that you may need to update. If you think an area applies to your business, select the link for more information.

  • categories

    Update any ledger accounts where you previously changed the default VAT rate from 5% to the new Lower rate 2 12.5%.

  • Products and services

    Update any ledger accounts where you previously changed the default VAT rate to 5%, to the new Lower rate 2 12.5%.

    If you haven't updated the default VAT rate, make sure you select the correct VAT rate when entering transactions.

  • Bank feeds and bank statement imports

    Update your bank rules and make sure any bank transactions from bank feeds or bank statement imports that relate to hospitality, holiday accommodation and attractions, use the new 12.5% rate.

    Do this the first time you import transactions from a bank feed or bank statement after 1st October.

  • Crediting invoices

    When you credit invoices, make sure you use the same rate of VAT that applied to the original invoice.

  • Copying quotes, estimates, invoices and credit notes

    If you copy existing transactions that relate to hospitality, holiday accommodation and attractions, you may need to change the VAT rate applied before saving the invoice.

  • VAT Cash Accounting

    Even if you use VAT Cash Accounting, VAT is still calculated when you create an invoice.

    You still need to consider the VAT rate being applied on invoices after 1st October.

  • Flat Rate VAT

    If you use Flat Rate VAT, the percentages you apply may change part-way through the VAT period.

    Check for any changes when you calculate VAT payments after the rate change.

  • Future-dated transactions

    Check for transactions that relate to hospitality, holiday accommodation and attractions dated after 1st October, and update them to us the new 12.5% VAT rate.

Categories

This may affect you if you have categories that relate to hospitality, holiday accommodation and attractions and now have some items that are charged at the lower rate.

If you're a hotel business, for example, all your room rates and food will be charged at the new lower rate, but alcoholic drinks and other sundry items such as dry cleaning are charged at the Standard rate.

Alternatively when recording purchases related to the hospitality industry, such as hotel or restaurant expenses, you may now need to record different VAT rates for different items.

What do I need to do?

Each holds a default VAT rate to save you from having to select the correct rate each time you use it.

If you have already changed the default VAT rate to the Lower Rate 5% on any ledger accounts, change these to the new Lower Rate 2 12.5%.

When to make these changes

Make these changes once you start processing new transactions dated from 1 October onwards.

How to change a

Find out what VAT rates are set on my categories

The VAT rate set on each is shown on the Chart of Accounts list.

Before you start, we recommend that you export your chart of accounts list so you have a record of the VAT rates set on each before you make any changes. This will also help you revert to the original VAT rates when the scheme ends in March.

  1. Select Settings, then Chart of Accounts.
  2. From the New drop-down, select Export Accounts.
  3. Once exported. download the file from the file icon.

Change the VAT rate on a

  1. Select Settings, then Chart of Accounts.
  2. Use the search to find the to change.
  3. Select the required .
  4. Choose Lower Rate 2 from the VAT Rate drop-down.

Recurring payments and receipts

If you have set up recurring Payments or Receipts which relate to hospitality, holiday accommodation and attractions, you must change them before they next recur on, or after, 1 October.

You cannot change the value of a recurring payment or receipt, so you must

  • stop the recurrence on the last recurring entry before the rate change

  • set up a new one with the reduced VAT rate to start on the first recurrence date on or after 1 October, then make that transaction recurring.

Locate your recurring entries

  1. From Banking, open the Bank Account you want to view.
  2. Change the From date to a date before the oldest current recurring entry occurred.

    For example, you have a recurring entry every 3 months. If the next entry is 15th October, set the From date to 15th July or before.

  3. Change the To date to today.
  4. You will see in the Recurrence column. This is the last recurrence in a sequence.

Cancel the Recurrence

  1. Click the transaction to open the details.
  2. Go to Edit Recurring.
  3. Select Stop Recurrence.
  4. Save.

The recurring icon will no longer appear next to the transaction.

You will now need to set up a new recurring entry with the correct VAT rate of 5.00% then make it a recurring transaction.

Bank feeds and bank statement imports

When bank transactions are imported, either via a bank feed or a bank statement, the VAT rate used on similar transactions is memorised automatically.

Similarly when you create a bank rule, the VAT rate applied to import a bank transaction is set on the rule.

If you're in the hospitality industry, the VAT rate applied to some items may change from 1 October, so you'll need to make sure you manually select the correct VAT rate on applicable transactions and edit any affected bank rules.

What do I need to do?

When importing transactions from a bank feed or bank statement, make sure you check and select the correct VAT rate before creating a new transaction.

If you're using bank rules, edit the rule and change the VAT rate.

We recommend you manually check transactions relating to hospitality, holiday accommodation and attractions around 1 October to check the default VAT rate you have set up is appropriate for the transaction.

Edit a bank rule

  1. From the incoming bank transactions list, select Rules.
  2. Select the rule to change.
  3. Change the VAT Rate or .

Copying invoices and credit notes

If you copy existing transactions that relate to hospitality, holiday accommodation and attractions, you may need to change the VAT rate applied before saving the invoice.

To do this:

  1. Select the transaction you want to copy.
  2. Click Copy, then make any necessary changes to the new invoice if required.
  3. For any items on the transaction that relate to hospitality, holiday accommodation and attractions, change the VAT rate to Lower Rate 2 12.5%.
  4. Click Save.

Flat Rate VAT

The government guide to calculating how much VAT you should pay has been updated to explain how to account for the VAT rate change.

The first calculation should start from day one of your accounting period to the last day of that flat rate. The second should start from the date of the new flat rate to the end of your accounting period.

For full details, see:

https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

In Accounting Start you first need to identify which transactions should be processed at the reduced rate.

The new flat rate will vary between different types of business. See https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

In the following example we use the current reduced flat rate of 4.5% and a new reduced flat rate of 8.5%.

  1. Calculate the VAT Return for the full VAT period and print the Detail report.
  2. Find transactions that appear in Box 6 of the VAT Return dated after 1 October.
  3. Identify which of these transactions also appear in Box 1 of the VAT Return.

  4. Add the Gross (VAT inclusive) values of these transactions.

    •      Multiply the total by 4.5%.
    • Multiply the total by 8.5%.
    • Calculate the difference.
  5.        Adjust box 1 and reduce the value owed by the difference.

  6.      Submit the Return to HMRC.

Example

  • Your VAT Return at 4.5% has a Box 1 value of £10,000
  • Box 6 contains £500 (Gross) of transactions that should be at 8.5%
  • £500 * 4.5% = £22.50
  • £500 * 4.5% = £42.5
  • The difference is £20
  • Adjust Box 1 up by £20.

Future-dated transactions

If you've entered a transaction before 1 October that's dated between 1 October 2021 and 31 March 2022, and it relates to hospitality, holiday accommodation and attractions, you may need to change the VAT rate from Lower Rate 5.00% to Lower Rate 2 12.5%.

The quickest way to see future-dated transactions is to run the Nominal Activity report.

  1. Go to Reporting and from the drop-down select More.
  2. Select Nominal Activity.
  3. For the Period choose Custom.
  4. Change the From date to 01/10/2021.
  5. Change the To date to 31/03/2022.
  6. Click Calculate.

    If you have no values in the Total Debits this period and Total Credits this period columns then you have no future dated transactions .
  7. Select Export Detailed.
  8. Confirm you want to Export All Accounts.
  9. Select your preferred format (CSV or PDF).
  10. Once completed, the Detailed Nominal Activity report shows in your reports folder at the top of the screen.

Disclaimer

This article provides general rather than specific guidance to assist all of our customers. We always do our best to make sure that the information is correct but as it's general guidance, no guarantees can be made concerning its suitability for your particular needs. The information is valid at the time of publishing and is provided without any warranty of any kind, express or implied. You should take professional advice if you require specific guidance on your individual circumstances, for example to ensure that the results obtained from using our software comply with statutory or regulatory requirements.

For VAT, customs and excise and duties enquiries you should call the HM Revenue and Customs (HMRC) National Advice Service Helpline on 0300 200 3700, contact your local HMRC office or visit their website at www.hmrc.gov.uk. In no event will we be liable to you for any direct, indirect, consequential or incidental loss or damage arising out of or in connection with your use of the information provided.