Temporary reduced 12.5% VAT rate

Overview

On 8 July 2020, the government announced that it would introduce a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions. This came into force on 15 July 2020. The Chancellor of the Exchequer later announced on 24 September 2020 that the temporary reduced rate for tourism and hospitality would be extended to 31 March 2021.

The Chancellor announced at Budget 2021 that the temporary reduced rate of 5% will be extended to 30 September 2021. From 1 October 2021 the reduced rate for these supplies will be replaced by the introduction of a new reduced rate of VAT of 12.5% which will remain in effect until 31 March 2022.

You can learn more about it from this UK Government article.


Add new VAT rate

If you are eligible for the reduced VAT rate of 12.5%, you will need to create a new VAT rate.

  1. Go to Settings > VAT settings > VAT rates
  2. Click Add
  3. Add the below information to the VAT rate
    1. VAT code name: Give it a name, for example, S-12.5%
    2. Description: Give it a description, for example, 12.5% RATE TO BE USED UNTIL 31 MARCH 22
    3. What transactions will this be used for: Select the type of transaction, for example, Sales and Purchases
    4. VAT account for sales (if you've chosen Sales in the previous step): Choose the chart of account to track the transactions
    5. VAT account for purchases (if you've chosen Purchases in the previous step): Choose the chart of account to track the transactions
    6. VAT Rate
      1. Rate: 12.5%
      2. Applicable from: 1/10/2021
    7. Reporting
      1. VAT liability section: Reduced rate
      2. Standard scheme: Please add the values as they apply to you. Please consult with a professional to help you set this up. You can use the existing S and R VAT code/s for guidance.
      3. Flat rate scheme: Please add the values as they apply to you. Please consult with a professional to help you set this up. You can use the existing S and R VAT code/s for guidance.

An example screenshot (to be used as guidance only):


Process transactions with the new rate

To start using the reduced 12.5% VAT rate, you will need to use the new VAT rate in the sales/purchase transactions.


Example of an Invoice


Example of a Bill

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