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Nov 2, 2021UK VAT Update: New Temporary Reduced VAT Rate from October 1
The Blue dot Team
The Blue dot Team
As the UK economy reopened following a long period of COVID-19 lockdowns and restrictions, certain eligible businesses received a boost from the government in the form of a temporary reduced VAT rate of 5%. The reduced rate was introduced by the UK government in July 2020 specifically to support businesses and protect jobs in the hotel, hospitality, and tourism sectors, which were severely impacted by the coronavirus pandemic and the subsequent measures taken by the government. In March 2021, the temporary rate was further extended to 30 September 2021. As restaurants, hotels and attractions saw gradual growth to pre-crisis volume, the relief of an additional period of reduced VAT for the services they supply was provided to help these businesses maintain business viability.
Temporary reduced VAT rates are not exclusive to the UK. Some European countries also introduced measures to address the economic consequences of the pandemic with supportive policies for VAT relief. In the Irish Budget 2022, the government extended a 9% VAT rate for the hospitality sector until September 2022. Greece has extended a 13% reduced VAT rate for all forms of land and air transport, coffee, non-alcoholic beverages, cinemas and theater performances to 30 June 2022. In contrast, on 1 October 2021, the temporary reduced VAT rate of 6% introduced in Norway for the hospitality sector will revert to the standard rate of 12%.
The VAT cut for the tourism and hospitality sector as announced in UK Budget 2021 will end on 30 September 2021 and a new temporary reduced rate of 12.5% will be in effect from 1 October 2021 to 31 March 2022. The government is introducing this new rate in a gradual transition back to the standard 20% VAT rate, applicable from 1 April 2022. The new temporary rate will apply across the United Kingdom as a means to provide further support to businesses and encourage continued growth.
The revised VAT reduction continues to apply to the same eligible businesses in the hospitality and tourism sector that were previously within the scope of the 5% rate. This includes restaurants, cafes and pubs; hot and cold takeaway food and non-alcoholic beverages; hotel and holiday accommodations including fees for caravan parks and tents and related facilities; and admission fees to attractions such as theaters, amusement parks, museums, zoos, concerts, and other events and facilities that are not covered by cultural exemption.
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