VAT increase for some businesses
At the start of the pandemic, the government cut the flat rate scheme percentages for businesses in the hospitality industry. As of 1 October 2021, these rates have increased. Who is affected, and why isn’t it the end of the story just yet?
In broad terms, a business using the flat rate scheme (FRS) charges output tax at the standard rate, but only accounts for it to HMRC at a specified FRS percentage - keeping the difference. But the snag is that they can’t claim input tax on most of their purchases. There are also rules to prevent traders that don’t incur much VAT from benefiting unfairly from the FRS.
Early on in the pandemic the government cut the FRS percentages for accommodation businesses, e.g. hotels, pubs and catering services. However, these cuts were temporary. As of 1 October 2021, each of the three rates has increased, albeit not back to their original level as yet. The rates are now as follows (previous figure in brackets):
- Accommodation businesses 5.5% (0%)
- Pubs 4% (1%)
- Catering services including restaurants and takeaways 8.5% (4.5%).
These percentage rates will apply until 31 March 2022, when it is expected that they will return to their pre-pandemic levels of 10.5%, 6.5% and 12.5% respectively.
Related Topics
-
Government launches consultation package on HMRC powers and tax administration
The government has launched a wide-ranging package of consultations on tax administration, including proposals to strengthen HMRC's debt recovery powers, modernise tax agent regulation and expand the use of digital services. Several of the measures could have significant implications for taxpayers and advisers. What has been proposed?
-
What are HMRC’s new procedures for export evidence?
HMRC has updated its guidance about the proof of export you must retain if you ship goods abroad and zero-rate the sales. How will the new guidance affect your business?
-
Getting out of the child benefit tax trap
You expect to earn over £60,000 for this tax year which means you may have to pay back some or all of your family’s child benefit due to the high income child benefit charge (HICBC). Is it possible to reduce the charge?