The temporary reduced rate of VAT (5%), introduced to assist qualifying hospitality trades disrupted by COVID lockdown measures, was increased to 12.5% on 1 October 2021. Based on present information, from 31 March 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.
Affected businesses will also need to consider the effects of this change on their selling prices to customers.
If you decide to maintain the VAT inclusive price that you charged when the 5% VAT rate applied, the increase in VAT to 12.5% will lower your profit margin. If you decide to pass on the VAT increase to your customers, you may experience a drop in demand for your services.
If you are unsure which way to proceed, please call us. We can help you consider your options and, if required, change your accounts software to include the new 12.5% rate.