Budget 2021 – VAT changes

Headline changes

No change to current VAT thresholds effectively extending the scope of UK VAT by dragging in more marginal businesses, but hospitality & tourism VAT cut to 5%, extended until 30 Sept 2021; then 12.5% till 30 April 2022

 

The Chancellor of the Exchequer, Rishi Sunak, has extending the VAT rate cut on hospitality and tourism from 20% to 5% until 30 Sep 2021; then 12.5% until 30 April 2022 (the original reduction had been extended in September 2020 from 13 Jan 2021 until 31 March 2021

The UK rate cut covers: Restaurants; cafes; pubs (excluding alcohol); hospitality; hotels; B&B's; home rental; caravan and tent sites; hot take away food; theatres; fairs; circuses; amusement parks; concerts; museums; zoos; cinemas; studio or factory tours; botanical gardens; exhibitions; and similar cultural events and facilities. 

The reduction only applies on entrance fees to the attractions listed; not other supplies provided during the visits such as souvenirs. However, if the goods are part of the admission fee and are incidental to the main supply, the whole supply is eligible for the temporary reduced rate.

Note: served alcoholic drinks will not benefit from the cut. It excludes entry into sporting events. The UK has already brought forward reduced VAT rate cuts for e-books.

Most European countries offer reduced rates on tourism and cultural serves; several have cut them further for the rest of this year to support the hard-hit sectors during COVID.

Hospitality covers: restaurants; cafes; entrance to tourism and cultural events; hotels and accommodation - including house rentals. 

Comment

The UK has one of the highest VAT rates on the tourism and entertainments sectors. Most other European countries have previously taken advantage of EU rules which allow reduced VAT rates on these services.