The temporary reduced rate of VAT (5%), introduced in July 2020 to assist qualifying hospitality trades disrupted by COVID lockdown measures, was increased to 12.5% on 1 October 2021. Based on present information, from 1 April 2022, this 12.5% rate will revert to the 20% standard rate.
Businesses that manage their own
accounts software will need to change the VAT settings to include the new 12.5% rate, and make sure that this new rate is applied to all relevant taxable sales from 1 October 2021, in place of the temporary 5% rate. If you need help with this your accountant should be able to assist.
This change will mean affected businesses will be at a crossroads as they will need to consider the effects of this change on their selling prices to customers.
If your businesses decides to maintain the VAT inclusive price that you charged when the 5% VAT rate applied, the increase in VAT to 12.5% could potentially lower your profit margin. However if you decide to pass on the VAT increase to your customers, the business may experience a drop in demand for services.
If you require assistance with the above or VAT pricing, please contact a
Moore (South) adviser.