Extension to the temporary reduced rate of VAT for the tourism and hospitality sector

The measure

The temporary reduced rate of 5% VAT for goods and services supplied by the tourism and hospitality sector was scheduled to come to an end on 31 March 2021. The government has announced that it will extend the reduced rate until 30 September 2021, at which point the rate will increase to 12.5% for a further six months until 31 March 2022, before returning to 20%. The measure is expected to cost a further £4.7 billion. Relevant guidance has been updated, and further details have been published in Revenue and Customs Brief 2 (2021).


Who will be affected?

Organisations that make supplies of hospitality, hotel and holiday accommodation and admission to certain attractions. The scope of the temporary reduced rate will not change, so businesses in the sector which have been eligible to apply the reduced rate should continue to be able to do so for the extended period.


When will the measure come into effect?

The reduced rate for affected goods and services will continue at 5% until 30 September 2021, and then at 12.5% until 31 March 2022.

Our view

The measure represents further much-needed support for a sector which continues to be severely affected by COVID-19. The decision to revert to the standard rate in two stages will require an additional systems update, but should help many businesses transition back to the standard rate next year.