The government has announced that the preferential VAT rates introduced as a temporary measure to boost trade in the hospitality industry are changing. Businesses in this sector will have to adapt to the new VAT rates, which are due to remain in place until March 2022.
Hospitality firms have undoubtedly benefited from the VAT reduction to 5% that was introduced on 8 July 2020, however, with the rates set to change again, there are plenty of considerations that businesses operating in this sector will have to take into account.
Before looking at those considerations in closer detail, it’s worth quickly recapping the recent announcement.
How Are Hospitality VAT Rates Set to Change?
As mentioned, the VAT rate for hospitality businesses has been reduced to 5% for the majority of the pandemic thus far.
However, in the 2021 Budget, the Chancellor announced that this preferential rate would end on 30 September 2021. From October 1st, the new VAT rate will be 12.5%, which will remain in place until 31 March 2022. April 1 2022 will mark a return to the previous industry-wide rate of 20%.
These changes will pose a series of challenges and opportunities for firms operating within this sector, which are worth examining in closer detail.
Upcoming VAT Changes Present Opportunity to Increase Sales
With less than a month before VAT increases to 12.5%, hospitality businesses have a chance to use that increase as a powerful sales and marketing tool. With many corporate Christmas bookings made during the month of September, making customers aware of the upcoming changes could help to push bookings up before the end of the month.
Firms such as restaurants and bars could pass the current VAT savings onto their customers, even for bookings that will take place after the deadline. Since output tax is calculated at the VAT rate when the deposit/payment is received, rather than when the supply takes place, the booking date doesn’t matter.
Therefore, restaurants, bars, and other hospitality companies should capitalise on this positive aspect of the upcoming changes during September.
Challenges for Hospitality Firms Presented by the Upcoming VAT Changes
There are plenty of challenges presented by the changes that firms will have to address before the end of September.
For example, there has never been a 12.5% VAT rate in the industry before. Thus, you need to consider whether your restaurant EPOS hardware and supporting backend enterprise management software can cope with the changes in the middle of a VAT quarter. Providers such as MCR Systems offer fully customisable hardware and software, but not all solutions can handle such changes.
Firms will also have to reproduce menus, update website prices, and reconfigure online ordering software to reflect the changes. Conversely, if businesses are not looking to pass on the savings, they will need to think about how that will affect their competitiveness in the market and whether they are even legally allowed to do so.
If you want to learn more about how the VAT changes will affect your business, you can contact a member of our team to discuss the potential impacts. We know that constant changes are presenting challenges for some firms, which is why we offer flexible, cloud-based hospitality software solutions that can be seamlessly updated in real-time. To learn more about how cloud-based technology can benefit your business, click here.