Since the 15th of July 2020, the hospitality and tourism sector has been enjoying a reduced VAT rate of 5%. This has applied to most supplies made by hotels, tourist attractions, members’ clubs and most event venues, along with food and drinks served in these premises, hot takeaway food and non-alcoholic beverages.

However, from the 1st of October 2021, this 5% VAT rate will increase to 12.5% and then back to the standard rate of 20% on the 1st of April 2022. These provide hoteliers and event organisers with two opportunities to promote advance payment for events, hotel rooms and even meals.

How Will These Changes Impact Businesses?

HMRC has confirmed that any advance payments or non-returned deposits must carry the VAT rate that was applicable when the payment was taken. It cannot carry the rate that will be applicable when the event happens, or the room is used.

For example, if a hotel sells tickets for a Christmas event at £180 per person (including 12.5% VAT of £20), they can offer a £12 discount to anyone who pays their ticket in full before the 1st of October 2021. This is because the ticket price, including the 5% VAT rate, will only be £168. If a guest is to cancel their Christmas booking, the hotel can then either give them a credit note based on the VAT rate initially charged or a full refund.