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Save VAT by booking in advance

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Hospitality businesses taking advance payments before October can charge 5% VAT rather than 12.5%; a saving for their customers and a boost for their sales.

13th Aug 2021
Independent VAT Consultant
Columnist
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The 5% rate has been in place since 15 July 2020, and applies to most supplies made by cafes, restaurants, pubs, hotels, members clubs, caravans parks, tourist attractions such as zoos and many others. It excludes alcoholic drinks. 

This 5% rate will increase to 12.5% on 1 October 2021. The 12.5% rate will subsequently rise to the standard 20% rate on 1 April 2022. 

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Replies (14)

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By Paul Crowley
13th Aug 2021 14:19

The Christmas meal thing is a good idea
Problem is getting the trader to understand the rules

Thanks (2)
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By Justin Bryant
16th Aug 2021 09:26

So, why is this acceptable tax planning and yet if Goldman Sachs wants to pay bonuses early or people want to crystallize CGT early (e.g. by selling to a settlor interested trust) to avoid a tax hike it's frowned upon? What's the difference? In all cases tax is being (sensibly) avoided due to the absence of anti-forestalling rules.

Thanks (3)
Replying to Justin Bryant:
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By VATs-enough
16th Aug 2021 15:59

I can appreciate that this may seem like a bit of a wheeze, but the tax point rules for VAT and the rules concerning changes in the VAT rate have operated this way for a good while now.

When the VAT rate goes down, you can sometimes reissue invoices etc to get the lower rate, but sometimes you will be stuck with higher rate I.e. this situation in reverse.

I personally consider this no more VAT planning than say, choosing to use cash accounting or the flat rate scheme. The rules are there both to be adhered to, but utilised to best effect where permissable.

Thanks (0)
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By Essex34UK
16th Aug 2021 11:27

Is someone able to clarify the position please if a business takes a deposit before 1st October but the customer doesn't pay the balance until the event takes place in say December. Does this mean that 5% VAT is due on the deposit and the balance paid in December will be at 12.5%. Or, does the fact that the booking was made and a deposit was paid before the rate increase on 1st October mean that the whole transaction would only be liable at 5%.

Thanks (0)
Replying to Essex34UK:
Quack
By Constantly Confused
17th Aug 2021 15:45

Essex34UK wrote:

Is someone able to clarify the position please if a business takes a deposit before 1st October but the customer doesn't pay the balance until the event takes place in say December. Does this mean that 5% VAT is due on the deposit and the balance paid in December will be at 12.5%. Or, does the fact that the booking was made and a deposit was paid before the rate increase on 1st October mean that the whole transaction would only be liable at 5%.

The general rule with tax points and deposits is that each payment/invoice triggers a tax point, so I would expect the deposit to be at 5% and the balance at 12.5%.

Thanks (1)
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By Angela Spencer
16th Aug 2021 11:43

I've already paid for a break at the beginning of October and been charged 12.5% - Can I ask for a partial refund ??

Thanks (2)
Replying to Angela Spencer:
Quack
By Constantly Confused
17th Aug 2021 15:47

Angela Spencer wrote:

I've already paid for a break at the beginning of October and been charged 12.5% - Can I ask for a partial refund ??

I would contact them and say they have made a mistake and charged you too much VAT. If they argue link them to this article and hopefully that will clear things up.

Thanks (0)
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By AndrewV12
16th Aug 2021 11:35

The new 12.5% VAT rate is still six weeks away, so you have got time to pay in advance for post-October supplies. Is now a good time to do a deal for your firm’s Christmas par.

Good thinking

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By essex accountant
16th Aug 2021 12:57

This is irrelevant in most cases - VAT registered traders can reclaim VAT on staff meals, so the net cost is the same.

Thanks (1)
Replying to essex accountant:
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By VATs-enough
16th Aug 2021 15:49

essex accountant wrote:

This is irrelevant in most cases - VAT registered traders can reclaim VAT on staff meals, so the net cost is the same.

Agreed. But lots of people book Xmas meals that aren't there for business, such as family gatherings, friends, e.g. golf societies and other 'groups' of people. Its more than work people that go out for dinner.

Thanks (0)
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By Open all hours
16th Aug 2021 15:25

Tried this on Booking.com last night (Sunday). Charged at 12.5%.

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By Flashman
20th Aug 2021 15:51

This reduction in rate of VAT does not necessarily work to the benefit of the customer. The following response was received from a hotelier: -

“We are currently paying 5% VAT on accommodation, but we haven’t reduced prices when government lowered the percentage and will not be increasing prices once it goes back to normal. Companies used this reduction in VAT in the ways that would help them, we have been extremely busy and didn’t have to reduce the prices as we would have not been able to accommodate more guests. We have chosen to use the money saved to cover the loss over closure period instead.”

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Replying to Flashman:
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By VATs-enough
21st Aug 2021 22:10

Nothing wrong with that.

The VAT reduction was to help struggling businesses, not necessarily to provide cheaper meals or guest stays to the public.

No legal obligation to reduce prices, or pass VAT saving on to customers.

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Replying to VATs-enough:
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By Flashman
22nd Aug 2021 16:17

I agree, although the article and some of the comments seemed to imply or assume that the benefit of the VAT reduction would/should be passed on to the customer. Some will be in for a disappointment if they make that assumption.

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