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UK VAT rate increase for hospitality, holiday accommodation and attractions

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Summary

This guide explains how to set up the new 12.5% VAT rate for UK hospitality, holiday accommodation and attractions in Sage 50cloud Accounts. The new rate applies from 1 October 2021.

Description


The temporary VAT rate of 5% for the hospitality, holiday accommodation and attractions sectors will be replaced from 1 October 2021 with a rate of 12.5%. This will apply until 31 March 2022 and affects:

  • Supplies of food and non-alcoholic drinks for consumption on premises from restaurants, pubs, bars, cafes and similar premises in the UK.
  • Supplies of hot takeaway food and hot takeaway non-alcoholic drinks.
  • Supplies of hotel and holiday accommodation and admission to certain attractions in the UK.

Find out more about the changes on Gov.uk >

If you're affected you probably made changes in your software when the 5% rate first took effect. For this latest change, you simply need to repeat the steps for the new 12.5% rate. Let's walk through it. 

Resolution

Create a new tax code

We recommend you create a new tax code for the temporary 12.5% VAT rate. This makes it easy to identify transactions you're entering with the temporary reduced VAT rate for reconciliation and analysis purposes. We recommend using T32 or, if T32 is already in use, the next available code.

  1. On the menu bar, click Settings, click Configuration then click Tax Codes.
  2. Select tax code T32 or the next available code and click Edit.
  3.  Complete the Edit tax code window as follows:
    RateEnter the required percentage - 12.5%
    Include in VAT ReturnTo ensure the transactions are picked up by the VAT Return, select this check box.
    Reverse ChargeLeave as "No"
    EC Code settingsLeave the check box unticked
    DescriptionEnter this description: Temporary Reduced VAT Rate
  4. Click OK, then click OK.

    Sage 50cloud Accounts v26 or below - Click OK, click Apply then click Close. If prompted to save the changes click No

Your new tax code is now ready to use from 1 October 2021. Next you can check for any recurring, memorised or outstanding items that need to be updated.


Recurring entries - Invoices and Credits

If you use recurring entries, you should update any recurring items that use the temporary 5% tax rate and change them to use your new 12.5% tax code from 1 October.

  1. Ensure you have processed your entries up to 30 September.
  2. Click Invoices and Credits, Sales Orders or Purchase orders as required.
  3. Click New or New Invoice then click Recall.
  4. Note the reference of the item you with to change, select it and click Load.
  5. Double-click the description of the item you want to amend.
  6. Change the tax code to T32 or equivalent, and click OK, then repeat for any other items affected.
  7. Click Memorise and enter the reference you noted in step 4.
  8. Click Save and click Close.

Recurring entries - Bank transactions

If you use the recurring entry function for bank transactions, you may need to update your recurring payments, receipts or if you use VAT Cash Accounting, payments on account.

  1. Ensure you have processed your entries up to 30 September.
  2. Click Bank, then click Recurring, select the required item and click Edit.
  3. In Posting Amounts, change the Tax code to T32 or equivalent and click OK.
  4. Repeat for any other recurring items.

Memorised batch invoices or credits

If you have memorised batch invoices or credits for regular use, you can update these templates if you need to apply the new tax code.

  1. Click Customers or Suppliers as required, then click Batch invoice or Batch Credit.
  2. Click Recall and make a note of the template name you choose to edit.
  3. Amend the tax code to T32 or equivalent and click Memorise.
  4. Save the file using the same file name you noted in step 2.

Memorised bank payments or bank receipts

If you have memorised bank payments or bank receipts for regular use, you can update these templates if you need to apply the new tax code.

  1. Click Bank, then click Bank payment or Bank receipt as required.
  2. Click Recall and make a note of the template you choose to edit.
  3. Amend the tax code to T32 or equivalent and click Memorise.
  4. Save the file using the same file name you noted in step 2.

Outstanding Orders and Invoices

If you have any outstanding invoices or orders to update on or after 1 October, you may need to edit the tax codes used on these items.

  1. Open the required module, for example Invoices and credits or Sales orders
  2. Double-click the required item.
  3. Double-click the description of the item.
  4. Amend the tax code to T32 or equivalent.
  5. Click OK, and then click Save.

Customer, Supplier and Product Records

Tax codes are stored in the customer, supplier and product records, if you need to change the tax codes for some or all of your records there are several approaches you can take.

  • If only a small number of records are affected, you can manually edit the records, change the tax code and save them again.
  • If a larger number of records are affected you can use the Batch changes option - This feature is available in Sage 50cloud Standard and Professional.
  • If you use Sage 50cloud Accounts Essentials, and you need to amend a large number of records, you can export the records, amend the tax codes and import the records again.

Other considerations

  • If you use screen capture software to import transactions into Sage 50cloud Accounts, you may need to update the rules in that software to include your new reduced VAT rate.
  • If  you're likely to create a number of new customer, supplier or product records before January that require a reduced rate VAT code, you may want to change the default tax codes that are applied to these  records as they are created. you can do this in Settings by editing the relevant defaults option.
  • If you have designed any customised VAT reports, you may need to edit the filters to make sure your new tax code is included. Read more >

Further information

  • If you're unsure if a transaction is vatable, or if you require further advice about VAT compliance, and how to approach this change in your business, we recommend that you contact HMRC or your accountant.
  • FAQs
  • HMRC Guidance
  • VAT Change Hub

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.


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