New Temporary Reduced Rate of VAT
The temporary reduced rate of 5% is coming to an end, but not as soon as initially expected.
The supplies affected are catering, holiday accommodation, and admissions to shows and certain other attractions.
From 1 October 2021, there will be a new temporary rate of 12.5% for these supplies, which will apply for a further six months, to 31 March 2022.
If you raise an invoice or receive payment for this type of supply before 1 October 2021, you can still apply the 5% VAT rate even if the transaction takes place after 1 October 2021.
The temporary reduced rate was introduced under the Value Added Tax (Reduced Rate) (Hospitality and Tourism) (Coronavirus) Order 2020. It introduced three new groups to Schedule 7A of the 1994 VAT Act.
These new groups were:
• Group 14 – “Course of Catering”
• Group 15 – “Holiday Accommodation etc.”
• Group 16 – “Shows and certain other attractions”
The temporary 5% reduced rates were meant to be in place until 31 March 2021.
However, the government announced in the March 2021 Budget that not only would the 5% rate continue until 30 September 2021, but a new temporary reduced rate of 12.5% would apply between 1 October 2021 and 31 March 2022.
However, despite the upcoming rate change, the 5% rate can still apply to the specified activities and events even if they take place after 30 September 2021.
The 5% can even apply to activities and events taking place after 31 March 2022, when the temporary reduced rate ends altogether.
This is because of the special provisions relating to tax points.
A basic tax point is created when services are performed.
If an invoice is issued or payment is received before this date, an actual tax point will be created, overriding the basic tax point.
If neither of these events occurs in advance, an actual tax point can still be created if an invoice is issued within a specific time frame after the basic tax point.
For section 33 bodies, this time limit is 60 days. (For other bodies, this time limit is 14 days.)
The 5% VAT rate can be used for invoices raised and income received until 30 September 2021, even if the supply doesn’t take place until after 1 October 2021.
For example, a local authority might put on its own productions in its theatre. If it sells tickets on 20 September for a 2021 Christmas Pantomime the VAT rate is 5% – the payment and invoicing create an actual tax point on 20 September. However, if the tickets were sold on 20 October, for example, the VAT rate would be 12.5%.
Further, if the local authority sells tickets on 20 September 2021 for a concert taking place on 20 August 2022, the VAT rate is still 5%. If the tickets were sold on 1 May 2022, for example, the VAT rate would be 20%. This difference could be passed to the customer or retained by the local authority.
If you have any questions, or would like further information, please contact