Diversified farm businesses alerted over VAT changes

Farm businesses providing accommodation and catering need to take account of forthcoming changes to VAT rates.

Changes apply from 1 October on the reduced VAT rate brought in to help businesses cope with the impact of Covid-19.

This year’s Budget extended the temporary 5% reduced rate of VAT until September 2021, when it will be replaced by a new rate of 12.5% until 31 March 2022.

Supplies that already benefit from the reduced rate and which will be affected by the October increase include:

• Food and non-alcoholic drinks sold for on-premises consumption, for example in restaurants and cafés
• Hot takeaway food and hot takeaway non-alcoholic beverages
• Sleeping accommodation, holiday accommodation, pitch fees for caravans and tents
• Admission to certain visitor attractions and events.

There are some particular complications for the changes in VAT rates, especially where vouchers may be used and advance payments made, including deposits, says accountant Saffery Champness.

If advance payments (including deposits) are taken between 1 October 2021 and 31 March 2022, those payments will be subject to 12.5% VAT even if, for example, accommodation is being booked for a period after 31 March 2022, the firm points out.

Nick Hart, director with responsibility for VAT, said: “Many farm businesses have diversified, particularly into offering tourist accommodation such as camping pitches and glamping to take advantage of the rise in numbers of those taking holidays in the UK. 

“They will have benefited from the 5% VAT rate but should now be looking ahead to that increasing to 12.5% from 1 October. 

“The main holiday season will have passed by that time but for those that remain open, planning ahead is vital. The collection of advance payments and deposits ahead of the rate changes on 1 October 2021 and 1 April 2022 (when the rate is due to revert to 20%) could provide VAT savings.”