There has been a surge in holiday bookings following the recent announcement of the lockdown exit plan.
The temporary reduced rate of VAT at 5% applies to holiday accommodation such as hotels, inns, holiday cottage/chalet lets, tent pitches, caravans/caravan pitches, houseboats etc. between 15 July 2020 and 31 March 2021. After that period the standard 20% VAT rate will apply.
Usually a deposit is paid at the time of booking followed by the final payment at a later date. If the payments straddle 31 March 2021, the deposit would be subject to VAT at 5% and the final payment would be subject to VAT at 20%.
It is possible to benefit from the 5% VAT rate on the whole holiday accommodation cost by:
- Settling the whole amount due for the holiday accommodation in full at the deposit date provided the payment is made on or before 31 March 2021; or
- Asking the supplier to issue the VAT invoice for the full amount due for the holiday accommodation provided the VAT invoice is dated on or before 31 March 2021. If they do this, the VAT on the full invoice becomes payable to HMRC on the next return, so if the customer has not paid yet, this could have a detrimental effect on the cashflow of the business.
Will the Budget bring continued support for the hospitality sector?
We should bear in mind that it is Budget Day next Wednesday, 3 March 2021, and the Chancellor may look to provide continuing support to the hospitality sector, by extending the temporary reduced rate period beyond 31 March 2021.
For more details of the budget including pre-budget predictions