VAT rate change for hospitality and tourism sector

Summary

The VAT rate change for hospitality and tourism sector in Sage Accounting.

Description

The VAT rate for hospitality changes back to 20% from 1st April.

This explains what to do to revert back to the Standard 20% rate.

About the changes

The UK VAT rate on hospitality, holiday accommodation and attractions is changing back to the STD 20% VAT rate from April 1st.

Transactions, where you have been using the 12.5% rate, will now be at a Standard rate of 20% VAT.

For detailed information about what's included, see the government support page:

https://www.gov.uk/guidance/vat-reduced-rate-for-hospitality-holiday-accommodation-and-attractions

Resolution

What do I need to check?

Here is a list of all the different areas and transactions that you may need to update. If you think an area applies to your business, select the link for more information.

Ledger accounts: Update any ledger accounts which use a default VAT rate of Lower rate 2 12.5% to Standard 20%
Products and services: Update any products and services which use a default VAT rate of Lower rate 2 12.5% to Standard 20%
Recurring invoices: Change any recurring invoices that currently use Lower Rate 2 12.5% back to the Standard 20% rate
Change after the last invoice recurred using the 12.5% VAT rate and before the first recurrence at the Standard 20% rate
Recurring payments and receipts: Stop any recurring payments or receipts that currently using the 12.5% rate. Recreate them using the Standard 20% rate
Importing Quick Entries: Update your quick import template change all transactions using the 12.5% back to the Standard 20% rate
Bank feeds and bank statement imports: Update your bank rules and make sure any bank transactionsfrom bank feeds or bank statement imports that relate to hospitality, holiday accommodation and attractions, use the Standard 20% rate
Do this the first time you import transactions from a bank feed or bank statement after 1st April
Converting quotes, proformas, drafts and estimates to invoices: Change the VAT rate on any quotes, proformas, drafts and estimates that use the Lower Rate 2 12.5% rate before they are converted to an invoice
This can be done at any time if you know the invoice will not be created before 1st April
Copying quotes, estimates, invoices and credit notes: If you have copied existing transactions that use the 12.5% rate, change the VAT rate applied before saving the invoice
VAT Cash Accounting: Even if you use VAT Cash Accounting, VAT is still calculated when you create an invoice
You still need to consider the VAT rate being applied on invoices after 1st April
Flat Rate VAT: If you use Flat Rate VAT, the percentages you apply may change part-way through the VAT period
Check for any changes when you calculate VAT payments after the rate change
Future-dated transactions: Check for transactions dated after 1st April that use the 12.5% rate and update them to use the 20% VAT rate

Ledger Accounts

This may affect you if you previously changed the default VAT rate to Lower rate 12.5% on any ledger accounts that relate to hospitality, holiday accommodation and attractions.

Each ledger account holds a default VAT rate to save you from having to select the correct rate each time you use it.

If you have already changed the default VAT rate to the Lower Rate 12.5% on any ledger accounts, change these back to the Standard 20%.

When to make these changes

Make these changes once you start processing new transactions dated from 1 April onwards.

Find out what VAT rates are set on ledger accounts

The VAT rate set on each ledger account is shown on the Chart of Accounts list.

Use any previously exported chart of accounts list to trace the ledger accounts that need to be updated, or export your chart of accounts list to find all the ledger accounts using the Lower rate 2.

Select Settings, then Business Settings, then Chart of Accounts.
From the New Ledger Account drop-down, select Export Accounts.
Once exported. download the file from the file icon.

Change the VAT rate on a ledger account

Select Settings, then Business Settings, then Chart of Accounts.
Use the search to find the ledger account to change.
Select the required ledger account.
Choose Standard from the VAT Rate drop-down.

Products and services

Change any products or services where the default VAT is Lower Rate 2 12.5%.

Find products and services that use the Lower Rate 2

Use the product and services list to find products and services that are currently using the Lower Rate 2 of 12.5%.

From Products & Services.
Select Filters and make sure the Status and Type to All then Close.
Select the settings cog to the left of the column headers.
Select VAT Rate and Purchase VAT rate.
TIP: To change where these appear on the report, hold down your left mouse button on the dots to the left and drag up or down the list.
Save.

The rates are now shown on your products and services list.

Change the default VAT rate to the standard rate

Select the product or service record from the list, then choose Edit.
From the I sell this Item drop-down, select Standard 20%.
From the I buy this Item drop-down, select Standard 20%.
Save.
Go back to the Products and Services list.

You have now changed the default VAT rate on the item, repeat this process for each item you need to change.

VAT inclusive prices

If you have products or services where the sales price is set to include VAT, changing the product or service record does not update existing transactions.

To correct the VAT values on any existing invoices you must correct the VAT rate on the product or service item, then delete the items from the invoice and add them again.

NOTE: If you convert a Quote or Estimate to an invoice and the Quote or Estimate was created with a VAT inclusive price of 12.5%, the VAT rate change on the product record is not automatically applied. You must remove the item and add it again to get the VAT inclusive price at 20%.

Recurring invoices

Edit any recurring invoices that relate to hospitality, holiday accommodation and attractions and use the Lower Rate 12.5% VAT rate.

Edit them after they last recurred with the Lower Rate 12.5% (before the end of March), and before the next one is due.

For example this weekly invoice posts every Monday. Change the rate after posting the invoice on 28 March but before 5 April:

Date	Net invoice value	VAT	VAT rate
28 March 2022	£100.00	£12.50	12.5%
5 April 2022	£100.00	£20	20%

To edit the VAT rate on a recurring invoice:

From Sales, select Sales invoices, then the Recurring Invoices tab.
Select the recurring invoice you want to edit.
Change the VAT rate to Standard 20%.
Save.

Recurring payments and receipts

If you have set up recurring Payments or Receipts which relate to hospitality, holiday accommodation and attractions, you must change them before they next recur on, or after, 1 April.

You cannot change the value of a recurring payment or receipt, so you must

Stop the recurrence on the last recurring entry before the rate change
Set up a new one with the standard VAT rate to start on the first recurrence date on or after 1 April, then make that transaction recurring

Locate your recurring entries

From Banking, open the Bank Account you want to view.
Change the From date to a date before the oldest current recurring entry occurred.
For example, you have a recurring entry every 3 months. If the next entry is 15th April, set the From date to 15th January or before.
Change the To date to today.
You will see in the Recurrence column. This is the last recurrence in a sequence.

Cancel the Recurrence

Click the transaction to open the details.
Go to Edit Recurring.
Select Stop Recurrence.
Save.

The recurring icon will no longer appear next to the transaction.

You will now need to set up a new recurring entry with the correct VAT rate of 20% and then make it a recurring transaction.

Importing Quick Entries

If you use a template spreadsheet to import information using Quick Entry Import, check the VAT rate applied to your transactions is still correct after the rate change.

Any transactions using the Lower Rate 2 will need to be changed to the Standard VAT rate of 20% before you import them.

Sales and Purchase Quick Entry Import

In the import spreadsheet, check the information is updated to reflect the 20% VAT rate in the following fields where applicable.

Column	Field name	Type	Notes
I	VAT Rate	Alphabetic text	For hospitality, holiday accommodation and attractions payments, change this to Standard.
J	VAT	Numeric text	The VAT value of the transaction.
K	Total	Numeric text	For hospitality, holiday accommodation and attractions payments, change this to the total amount of the Net and VAT.

TIP: If you have already imported Quick Entries which need to be changed, you can manually Edit the Quick Entry to show the correct values. If you have created new ledger accounts, you must make sure these are added to the spreadsheet too.

Bank feeds and bank statement imports

When bank transactions are imported, either via a bank feed or a bank statement, the VAT rate used on similar transactions is memorised automatically.

Similarly when you create a bank rule, the VAT rate applied to import a bank transaction is set on the rule.

If you're in the hospitality industry, the VAT rate applied to some items may change from 1 April, so you'll need to make sure you manually select the correct VAT rate on applicable transactions and edit any affected bank rules.

What do I need to do?

When importing transactions from a bank feed or bank statement, make sure you check and select the correct VAT rate before creating a new transaction.

If you're using bank rules, edit the rule and change the VAT rate.

TIP: We recommend you manually check transactions relating to hospitality, holiday accommodation and attractions around 1 April to check the default VAT rate you have set up is appropriate for the transaction.

Edit a bank rule

From the incoming bank transactions list, select Rules.
Select the rule to change.
Change the VAT Rate or ledger account.

Quotes, Estimates, Pro Forma & Draft Invoices

Change the VAT rate on quotes, estimates or pro forma invoices, or, draft sales or purchase invoices, before you convert them to a full invoice.

If you do this, re-issue them to your customers to update them with the changes to the VAT rate.

Alternatively, update the VAT rate once the invoice is created.

Change quotes and estimates

The process to change quotes and estimates is the same.

TIP: Before you update Quotes and Estimates, ensure you have updated any VAT inclusive prices.

From Sales select Quotes & Estimates.
Check the From and To date range will locate your documents, then Search.
Select which document you want to change, then Edit.
Change the VAT Rate to Standard 20%.
Select Save, Save & Email or Save and Print as required.

You can now Create Invoice with the correct VAT rate applied.

TIP: Once you have converted to an Invoice you cannot edit a Quote or Estimate. If you need to change the VAT you must edit the invoice.

Pro forma & draft Invoices

The process to change Pro forma and draft invoices is the same.

From Sales select Sales Invoices or from Purchases select Purchase Invoices.
Check the From and To date range will locate your documents, then Search.
Select which document you need to change, then Edit.
Change the VAT Rate to Standard 20%.
Select Save, Save & Email or Save and Print as required.

TIP: You can filter the invoice list to show the type of document you are looking for. To do this, select More, then in Status change the drop-down to Pro Forma or Draft and Search.

Copying quotes, estimates, invoices and credit notes

If you copy existing transactions that relate to hospitality, holiday accommodation and attractions, you may need to change the VAT rate applied before saving the invoice.

To do this:

Select the transaction you want to copy.
Click Copy, then make any necessary changes to the new invoice if required.
For any items on the transaction that relate to hospitality, holiday accommodation and attractions, change the VAT rate to Standard 20%.
Click Save.

Flat Rate VAT

The government guide to calculating how much VAT you should pay has been updated to explain how to account for the VAT rate change.

The first calculation should start from day one of your accounting period to the last day of that flat rate. The second should start from the date of the new flat rate to the end of your accounting period.

For full details, see: https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

In Accounting you first need to identify which transactions should be processed at the reduced rate.

The new flat rate will vary between different types of business. See https://www.gov.uk/vat-flat-rate-scheme/how-much-you-pay

In the following example we use the current reduced flat rate of 4.5% and a new reduced flat rate of 8.5%.

Calculate the VAT Return for the full VAT period and print the Detail report.
Find transactions that appear in Box 6 of the VAT Return dated after 1 October.
Identify which of these transactions also appear in Box 1 of the VAT Return.
Add the Gross (VAT inclusive) values of these transactions.
Multiply the total by 4.5%.
Multiply the total by 8.5%.
Calculate the difference.
Adjust box 1 and reduce the value owed by the difference.
Submit the Return to HMRC.

Example

Your VAT Return at 4.5% has a Box 1 value of £10,000
Box 6 contains £500 (Gross) of transactions that should be at 8.5%
£500 * 4.5% = £22.50
£500 * 4.5% = £42.5
The difference is £20
Adjust Box 1 up by £20

Future-dated transactions

If you've entered a transaction that's dated after 1 April 2022, and it relates to hospitality, holiday accommodation and attractions, you may need to change the VAT rate to Standard 20%.

The quickest way to see future-dated transactions is to run the Nominal Activity report.

Go to Reporting and from the drop-down select More.
Select Nominal Activity.
For the Period choose Custom.
Change the From date to 01/04/2022.
Change the To date to 31/03/2023.
Click Calculate.
TIP: If you have no values in the Total Debits this period and Total Credits this period columns then you have no future dated transactions.
Select Export Detailed.
Confirm you want to Export All Accounts.
To save or print the report, from the Export menu, and then select CSV or PDF.

The report is ready when a notification displays on the main navigation bar, to the left of Profile. Select the notification bell to open the report.

Disclaimer

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.