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
-
HMRC reminds employers about payrolling benefits deadlines
HMRC is reminding employers of key dates and preparations ahead of the transition to real-time payrolling of benefits in kind (BiKs). With an important voluntary registration deadline approaching, what do payroll teams need to know?
-
Why do frozen mileage rates affect VAT?
Your business pays a fixed mileage allowance to staff who use their private cars for business travel. The rates published by HMRC have been frozen since 2011 but is this relevant to determine how much input tax you can claim on the payments?
-
HMRC restarts direct recovery of tax debts from bank accounts
HMRC has resumed use of its Direct Recovery of Debts (DRD) powers, enabling it to recover unpaid tax directly from the bank accounts of businesses and individuals who have ignored repeated attempts to settle outstanding liabilities. What does this mean in practice for business owners and directors?