From 1st October, hospitality, holiday accommodations and attractions businesses will be impacted by a new VAT rate of 12.5%. This is a significant rise from the temporarily reduced rate of 5%, introduced on 8 July 2020, which was put in place to encourage customers back to the sector following the COVID-19 lockdown.
The new 12.5% rate will stay in place until 31 March 2022. From 1 April, affected businesses will experience another increase as they are to return to the standard rate of 20%.
Those affected by the change include VAT registered businesses in the hospitality or holiday accommodation sector, including cafes, restaurants, pubs and hotels, as well as attractions such as shows and theme parks, and more. For many small businesses in these industries, with narrow profit margins and precariously balanced cashflow, the rate hike signals a new host of changes to be navigated.
Businesses in affected sectors will likely have already been financially hit by the lockdowns in the last year, with many forced to close for long stretches with no custom. As a result, managing the VAT rate hike could have an impact on already stretched finances.
However, steps can be taken to ensure small business owners keep their company running smoothly. Small businesses must act now to prepare for the change, to avoid any further disruption to business and their processes.
Make all the necessary updates to offers across online and in print
The rate rise may mean that current prices of food, drink and accommodation will need to be reconsidered. If this is the case, it is key to ensure pricing has been updated across all forms of communications with customers to avoid any confusion.
For restaurants and other catering venues, it will be important to update both physical copies and online versions of menus, price lists and receipts. For events and hospitality businesses, this could also include updating the prices of tickets, banners, and signage. All businesses should ensure prices and VAT rates are listed online within website content, which includes admission and pitch fees.
It is also very important to make sure all changes to prices are communicated clearly to staff, to prevent compliance issues or customer services headaches.
Check in with third-party providers and vendors
Partnerships with suppliers and third-party vendors are fundamental to the success of hospitality businesses. From fruit and vegetable suppliers to travel agents, there are a host of companies associated with businesses in affected sectors that will need to be notified of any changes to offers and product prices.
As these providers are a step removed from the VAT rate change increase, it is vital to keep lines of communication open on how the change will impact this partnership.
Additionally, it’s important to check with Electronic Point of Sale (EPOS) system providers to ensure the new rate has been successfully activated.
Update financial management software and applications
Any changes to prices must also be communicated with the business’ accountant. For those without an accountant, all back-office information needs to be revised to reflect the new rate as soon as possible.
Many small business owners use financial management software to help run their businesses’ bookkeeping and accounting processes and the process will be automated in many of these packages ‘ the software should automatically update. It has been possible to activate the new 12.5% VAT code in QuickBooks, for example, from 20 September.
Finally, utilising an existing network is key ‘ an accountant can be indispensable at times like this, and financial management software can save valuable time and help avoid confusion.
Ultimately, it is all about communication. If small businesses follow these steps, they should be able to keep their business running smoothly despite any changes created by the VAT rate hike.