VAT changes within the Hospitality sector

VAT changes within the Hospitality sector

Are you in the Hospitality sector? We thought we do a quick run through of the changes which come into effect October 1st 2021. So you can make sure your VAT rates are adjusted in time. It will mean that some hospitality businesses will have to deal with four rates of VAT in their accounting systems from 1 October 2021.

VAT charges within the Hospitality sector are changing. They are rising. In a stepped manner.

Since July 2020 supplies made by the hospitality industry have been subject to 5% VAT but will increase to 12.5% from October 1st, for a period of six months. After which the 20% rate will resume on 1 April 2022. It will then be back to three VAT rates: 0%, 5% and 20%.

The rates in the Flat Rate Scheme (FRS) are also increasing.

From 1 October, the FRS rates will increase for the following three categories:

  • Catering services including restaurants and takeaways: 4.5% will increase to 8.5%
  • Hotel or accommodation: 0% will increase to 5.5%
  • Pubs: 1% will increase to 4%


Here’s what the changes will mean for you and your business:

How will this affect your invoicing?

Sales invoices raised or payments received by hospitality suppliers before these dates will be subject to the rate in force on the invoice or payment date, rather than when the goods or services are subsequently consumed.

What about credit notes/order cancellations?

If you raise a sales invoice or receive an advance payment at the 5% rate of VAT before 1 October 2021, and then it is adjusted after this date, perhaps because of an order cancellation or price adjustment, the VAT rate for the credit note will be based on the rate originally charged. This is helpfully confirmed by HMRC’s guidance: VAT Notice 700, para 18.2.5


Flat rate scheme (FRS) – new percentage rates

How does the Flat Rate Scheme work for a VAT return which covers both scheme rates?

There will be a further challenge for businesses that do not complete calendar quarter VAT returns; therefore, there will be two FRS rates for VAT returns ending at the end of October or November.

A pub completing a VAT return for the three months to 31 October, which uses the FRS will account for 4.5% VAT on its August and September gross takings and 8.5% for receipts in October.

Thinking of rejoining?

Some businesses left the Flat Rate scheme in 2020 and may want to rejoin. Please talk to us about the mix of sales to see if this would be beneficial for your business. You can rejoin the scheme any time after you’ve been out of it for a year.


As ever, please call us on 01763 257882 or email We won’t charge you for an enquiry, so don’t worry about that!