The hospitality and tourism sector has been enjoying a reduced rate of VAT (5%) since 15 July 2020. This rate applies to most supplies made by hotels, tourist attractions, members’ clubs and most events venues. It also applies to the food and drink served in those premises and hot takeaway food and non-alcoholic drinks.
From 1 October 2021 the 5% VAT rate will increase to 12.5% and on 1 April 2022 it will revert to the normal standard rate of 20%. These rate rises provide hoteliers and event organisers with two opportunities to promote advance payment for events, hotel rooms and even meals.
HMRC has confirmed that any advance payments or non-returned deposits must carry VAT at the rate applicable when the payment is taken and not the rate applicable when the event occurs or the room is actually used.
If a hotel sells tickets to its Christmas event at £180 per head (including 12.5% VAT of £20). It could offer a £12 discount to those who pay in full for their tickets before 1 October 2021 as the ticket price including 5% VAT is £168.
If a guest cancels their Christmas booking the hotel should give them a credit note based on the VAT rate originally charged, or a full refund.