The Chancellor’s autumn 2021 Budget and Spending Review included support for businesses trying to rebuild after the pandemic. It was received with particular interest by those in the hospitality sector, still reeling from Covid-19 lockdowns and a downturn in the economy.

Some Background: What help was on offer for the hospitality sector?

During the epidemic, the hotel and leisure industry had an especially difficult time. The requirement to stay aloof was a big impediment to business in businesses that relied on social contact and engagement.

The government created a package of broad-based policies, including furloughs and bounce-back loans. Recognizing the unique challenges that enterprises in the hotel industry face, the government additionally announced:

  • A temporary reduction to the VAT rate for hospitality sector businesses
  • Business rates relief

This industry has been heavily damaged by lockdowns, employee shortages, and supply challenges. To assist cushion the shock, a transitional rate of 5% VAT went into effect in July 2020.

Restaurants and food outlets, hotels, vacation rentals, and some tourist attractions were all subjects to the temporary decreased VAT rate. The Chancellor stated in September 2020 that the 5% rate will be extended until March 31, 2021. It was later extended till September 30th, 2021.

From October 1st to March 31st, the VAT rate was raised to 12.5 per cent, where it will remain until March 31, 2022.

The supplies to which the temporarily reduced rates will apply remain the same.

How to calculate the new rate of VAT

In order to calculate the amount of VAT due to HMRC from 1 October 2021, a new VAT portion will be introduced. When utilising cash revenues to compute 12.5 per cent VAT, businesses should utilise 1/9. For instance, if a client pays £500 for a hotel room on October 1, 2021, the output tax owing to HMRC is £500 x 1/9 = £55.56.

Business rates relief

 The government also provided retail, hotel, and leisure sectors in England a temporary 100 per cent business rates relief for the 2020 to 2021 tax year during the height of the epidemic last year.

Despite anticipation that the government will extend this assistance in this year’s Budget, the government is currently only giving 50%. While better than nothing, many hotel firms do not welcome it, forecasting a difficult winter ahead.

What else has the latest budget offered for leisure and hospitality businesses?

There are quite a few things to consider, not to mention the ways in which businesses can maximise temporally reduced VAT rates between now and March.

Regardless, the new rate is expected to help a wide range of industrial enterprises, with the total value of the new rate estimated to be roughly £1.78 billion.

The government has also confirmed the relief will be capped at £110,000 per business.

Who will benefit?

Most businesses that benefitted from the 5% reduced rate of VAT are now also benefiting from the new 12.5% rate. They include:

  • Food and non-alcoholic drinks are sold for customer’s onsite, for example, in restaurants, pubs and cafes.
  • Hot food to take away
  • Hot takeaway non-alcoholic drinks
  • Admissions to attractions that aren’t already able to claim the cultural VAT exemption. These establishments include cinemas, theatres, zoos, circuses, amusement parks, fairs, concerts, exhibitions, and museums.
  • Sleeping accommodation, like a hotel, holiday accommodation and campsites.

Are you using the Flat Rate Scheme?

A short point of clarification: if you run a small business and rely on the Flat Rate Scheme to ease your VAT calculations, you should be aware that some percentages have been reduced. This puts them in line with the temporary VAT rate reduction.

What do businesses in the hospitality industry need to do next?

Business owners don’t need to do anything to benefit from the business rate relief changes. Discounts will be applied to your bill automatically.

Don’t forget, you can estimate the business rate relief using the government business rates calculator. If you think you’re not getting the relief your business is entitled to.

Changes to duty on alcohol

As part of the 2021 Autumn Budget, to government also unveiled some notable changes to the duty on alcohol.

Scrapping the current tax bands

The first reform will be the elimination of the 16 present alcohol tax bandings, which the Chancellor claims would simplify alcohol taxes. He went on to say that present duty rates on beer, wine, cider, and spirits will be frozen for the next 12 months and that they will be divided into four categories based on the percentage volume of alcohol consumed. Basically, the higher the rate, the stronger the drink.