Summary. The vat reduction hospitality experienced in October 2021 benefited many businesses post-COVID, attracting consumers with better prices. However, by April 2022, VAT returned to 20%, altering the VAT Flat Rate Scheme percentages and impacting hospitality sectors. Thomas Nock Martin offers guidance on navigating these changes.
Since the 1st of October 2021, the hospitality and catering industry were granted a 12.5% reduction in VAT rates. This VAT reduction was a blessing for businesses that were victims of the COVID-19 outbreak. Because of this, consumers were enticed into further purchasing with the knowledge of getting more for their money.
However, as of the 1st of April 2022, VAT rates have reverted back to 20%. This leaves businesses outraged that they can no longer reap the benefits. Consequently, this has had a knock-on effect on the VAT Flat Rate Scheme percentages. This we will further explain in today’s article.
What Is The VAT Flat Rate Scheme?
The VAT Flat Rate Scheme is a system designed to simplify the VAT process, especially for small businesses. As opposed to monthly instalments, they are required to pay a fixed percentage of their annual turnover. Although without the recent VAT reduction enabling them to further their budget, this VAT scheme has meant that specific sectors are subject to a new VAT percentage annually.
What are the new VAT percentages for hospitality? From the 1st of April, catering services, including takeaways, restaurants and other outlets, are required to pay 12.5%, while the hotel & accommodation sector is at 10.5% and pubs are at 6.5%. A significant increase from the percentages that aligned with the VAT reduction in the UK.
Related: Correcting VAT Errors
What Does This Mean For Your Business?
With VAT Rates continuously fluctuating over recent years, it’s no surprise that your business has had to adjust its offerings to ensure business stability. With this new VAT increase, we hope you were agile in updating the point of sales systems to reflect these changes.
If unable, we recommend you backlog and set aside the required funds for this new VAT rate. This way, you can ensure that you’re providing accurate invoices. Also, while reducing the risk of impacting your profits and preventing retrospective adjustments.
Now that the hospitality industry cannot take advantage of VAT reduction, it may be time to inspect your sales prices to mirror these new charges. If you decide otherwise, you could potentially impact your overall profitability. Please note that your customers will want to be aware of these changes. So, ensure that you replace numbers on your current menu and/or online ventures such as Booking.com.
Related: Why Small Businesses Should Use An Accountant
How We Can Help
Here at Thomas Nock Martin Chartered Accountants in Brierley Hill, we endeavour to stay up to date on VAT rates. This includes VAT reduction and increases to provide our clients with valuable insights into how they can sustain custom and profits. As leading tax accountants, we understand the vitality of rises and reductions in VAT. In addition, how this can have a detrimental effect on businesses.
This is why outsourcing tax assistance from experts like ourselves is the ideal way to stay on top of taxes & VAT Rates. You can continue running your business with the knowledge that you aren’t at risk of loss. If you’d like further information on how we can support you in your business’s finances, contact our team at mail@tnmca.com.
