The government announced on 8 July 2020 that it intended to legislate to apply a temporary 5% reduced rate of VAT to certain supplies relating to hospitality, hotel and holiday accommodation and admission to certain attractions. The reduced rate was initially introduced to last for a temporary period between 15 July 2020 and 12 January 2021. This period was subsequently extended to 30 September 2021. From 01 October 2021, the rate was increased to 12.5% for 6 months, ending on 31 March 2022. The scope of the relief will remain unchanged.
- During this period you will need to ensure that you raise & record invoices correctly, depending on the classification of the goods / services.
- You can see which items are impacted by the change here.
- Specific government instructions around the VAT rate changes and what it means for day-to-day processing can be found here.
NOTE: The temporary reduced VAT rate of 12.5% for the hospitality, holiday accommodation and attractions sectors comes to an end on 31 March 2022. After this date, paying careful attention to the tax points of existing invoices, the reduced rate code you created should no longer be used.
Unless already enabled, Sage 200 Professional required a lower rate VAT code of 12.5%.
TIP: If you already had a reduced rate of VAT and wished to report on items temporarily impacted by the VAT change you could create a separate VAT code to help you keep track.
How to check if you have a reduced rate of VAT enabled
- Open Accounting System Manager, click Settings then click VAT Rates.
- Review the list of rates for one set at 12.5% for the lower rate.
If you don't already have a lower rate, see below.
How to set up a VAT rate for the reduced rate
- Open Accounting System Manager and click Settings then click VAT Rates.
- Click Add and enter in detail including.
Code An available VAT Code number Name This can be anything which is meaningful to your business VAT return This must be ticked % Set to 12.5% Input Code Optional depending on your business setup Output Code Optional depending on your business setup
- Click OK.
Should you set up additional data sets within your product you will need to ensure that the database is set up to include the reduced rate of VAT.
VAT Return reconciliation
As part of this process if you identify an invoice where information has been recorded incorrectly, it is advisable to carry out a full error correction rather than amend values on the VAT return. For assistance with error corrections in the software please see the help file here.
Default Customer/ Supplier rates
You may need to review any Customer or Supplier default VAT codes, where you solely engage with them for items connected with the reduced VAT rate.
To change the default VAT code
- For Customer records, open the Sales Ledger and click Sales Accounts then click Amend Account Details, select an account and click Trading tab.
The Default VAT code can then be altered using the dropdown box. After making the change, Click Save.
- For Supplier records open the Purchase Ledger and click Purchase Account then click Amend Account Details, select an account and click Trading tab.
The Default VAT code can then be altered using the dropdown box.
After making the change, click Save.
Alternatively if you are using Sage 200 Professional Spring 2019 or above you can prepare an import to change several records at once, further information on how to prepare this import can be found here:
TIP: If you retain the import file you can use it to reverse when needed by simply changing the VAT Code.
Do you operate under the Tour Operators Margin scheme?
Specific changes may be required to the way you process, further advice can be found in the VAT notice 709/5 available here.
Where can I find further information about these changes?
The government has published a policy paper available here.
This article provides general rather than specific guidance to assist all of our customers. We always do our best to make sure that the information is correct but as it's general guidance, no guarantees can be made concerning its suitability for your particular needs. The information is valid at the time of publishing and is provided without any warranty of any kind, express or implied. You should take professional advice if you require specific guidance on your individual circumstances, for example to ensure that the results obtained from using our software comply with statutory or regulatory requirements.
For VAT, customs and excise and duties enquiries you should call the HM Revenue and Customs HMRC National Advice Service Helpline on 0300 200 3700, contact your local HMRC office or visit their website at www.hmrc.gov.uk. In no event will we be liable to you for any direct, indirect, consequential or incidental loss or damage arising out of or in connection with your use of the information provided.