Reduced VAT Rate for Hospitality and Tourism

The UK government introduced temporary reduced VAT rates for hospitality, hotel accommodation and attractions in response to the COVID-19 pandemic. These reduced rates ended on 31 March 2022, and normal VAT rules now apply. If you operate a business in these sectors, you should charge the standard rate of 20% from 1 April 2022 onwards.

When the reduced rates applied

The temporary VAT reduction ran from 15 July 2020 to 31 March 2022. During this period, two different rates applied:

• 5% from 15 July 2020 to 30 September 2021
• 12.5% from 1 October 2021 to 31 March 2022

From 1 April 2022, the standard rate of 20% applies to all supplies that previously qualified for the temporary reduced rates.

What qualified for the reduced rate

Hospitality businesses

The temporary reduced rate applied to food and non-alcoholic beverages sold for consumption on your premises, such as in restaurants, cafés or pubs. These supplies now require the standard rate of 20%.

Hot takeaway food and hot takeaway non-alcoholic drinks also qualified for the reduced rate during the temporary period. Cold takeaway food follows different VAT rules that were not affected by these temporary changes.

Alcoholic drinks were excluded from the reduced rate and remained at the standard rate throughout the temporary period.

Hotel and holiday accommodation

The temporary reduced rate covered:

• Sleeping accommodation in hotels or similar establishments
• Holiday accommodation supplies
• Caravan pitch fees and associated facilities
• Tent pitches and camping facilities

All these supplies now require the standard rate of 20%.

Admission charges to attractions

If you charged admission fees to attractions that were normally standard-rated, you could apply the reduced rate during the temporary period. However, if your admission charges were VAT-exempt, the exemption took precedence and you could not use the reduced rate. Exempt admission charges remained exempt throughout.

From 1 April 2022, standard-rated admission charges return to 20%.

Special schemes affected by the changes

Flat Rate Scheme

If you use the Flat Rate Scheme to simplify your VAT calculations, HMRC adjusted the flat rate percentages during the temporary reduced rate period to reflect the lower rates charged. These percentages returned to their normal levels after 31 March 2022.

Tour Operators Margin Scheme

Businesses using the Tour Operators Margin Scheme, which applies when you buy in and resell travel, accommodation and related services in your own name, needed to adjust their margin calculations during the temporary period to account for the reduced rates.

Retail schemes

Catering businesses using retail schemes may have needed to alter their accounting systems between 15 July 2020 and 31 March 2022.

If you had a bespoke retail scheme agreement, you should have reviewed whether alterations were needed. Businesses with turnover between £1 million and £130 million using a catering adaptation method could alter the scheme without prior HMRC agreement, provided the calculation gave a fair and reasonable result.

For caterers using the direct calculation scheme, if all your sales qualified for the reduced rate, you applied that rate to your daily gross takings. If you had mixed supplies and your till couldn't account for different rates, you could adopt the principles of the direct calculation scheme for standard-rated goods, or make a fair and reasonable apportionment while keeping records of your workings.

Supplies that straddled the rate changes

In most cases, you simply applied the correct rate based on when the supply took place:

• 5% for supplies made between 15 July 2020 and 30 September 2021
• 12.5% for supplies made between 1 October 2021 and 31 March 2022
• 20% for supplies made from 1 April 2022 onwards

However, situations arose where you received payments or issued invoices before the rate changes for supplies that took place after the changes. Special rules determined which rate to apply in these circumstances, based on the tax point (the date VAT becomes due).

Current position for 2025/26

In the current tax year (2025/26), all hospitality, hotel accommodation and attraction admission charges that qualified for the temporary reduced rates now require the standard rate of 20%, unless other VAT reliefs or exemptions apply.

The temporary reduced rates were a time-limited measure to support businesses affected by pandemic restrictions and have not been extended or reintroduced.

Sources

• VAT: reduced rate for hospitality, holiday accommodation and attractions
• Catering, takeaway food and VAT (Notice 709/1)
• Hotels, holiday accommodation and VAT (Notice 709/3)
• VAT on admission charges to attractions
• VAT Flat Rate Scheme
• Tour Operators Margin Scheme (VAT Notice 709/5)
• VAT guide (Notice 700)
• Retail schemes (Notice 727)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.