Multiple Rates, One Invoice: Hospitality’s VAT Puzzle
- Accommodation: Most hotel, B&B, and short-stay lets are subject to 20% VAT. Temporary reduced rates (such as those seen during COVID) have lapsed, but watch for any new government reliefs or local policies.
- Food and Drink:
- Eat-in/takeaway hot food: 20% VAT.
- Cold takeaway food: Usually zero-rated, but there are key exceptions (e.g., ice cream, some drinks).
- Alcoholic beverages: Always standard rated at 20%.
- Holiday lets: Short-term holiday accommodation in the UK is VATable if you’re above the £90,000 threshold. Watch thresholds for region-specific exemptions.
Mixed Supplies: Packaging Pitfalls
- Bundled deals: Breakfast with room, spa and meal packages—or a “wedding package” combining spa, food, and rooms—require careful VAT apportionment. Each element must be taxed at the correct rate.
- Event hire: Venue hire may be exempt, but with supplied catering and entertainment, portions may be VATable.
Tip:
Always break down package prices by element to document and justify VAT rates.
Key Challenges and How to Overcome Them
1. Getting Product Classification Right
- Snacks, takeaway, deli food: The line between zero and standard rate can be fine—e.g., a plain bagel (zero-rated) vs. one with cream cheese (standard rate).
- Drink packaging: Drinks “to go” versus with a meal—different rates can apply.
2. Technology & POS System Updates
- Ensure your tills, online booking engines, and invoicing software code VAT correctly for each supply.
- VAT rate changes? Update your systems and staff training immediately.
3. Holiday Accommodation & VAT Thresholds
- Calculate turnover for each “business” separately (if distinct legal entities), but beware of aggregation rules.
- Consider voluntary registration for small lets if input VAT on renovations/maintenance is significant—a common win for property investors and holiday home owners.
4. Capital Expenditure & Refurbishments
- Major refurbishments attract input VAT you may be able to reclaim (if your business is VAT-registered).
- Check capital goods scheme adjustment rules for large investments and keep meticulous records.
Best Practice Summary Table
Hospitality Supply | VAT Rate | Notes |
|---|---|---|
| Hotel room & holiday let | 20% | Threshold applies; include all extras in assessment |
| Eat-in meal | 20% | Even if cold food |
| Takeaway cold food | 0% | But exceptions: ice cream, sweets etc. |
| Alcoholic beverages | 20% | Always standard-rated |
| Event bundles | Mixed | Split out VAT by supply component |
| Room-only vs. B&B package | Mixed | B&B must be split into accommodation & food |
Proactive VAT Strategies for Hospitality Businesses
- Train and retrain staff on rate rules and coding.
- Audit your sales and invoicing software every quarter, especially after rate or rule changes.
- Engage with specialist accountants who understand hospitality and can flag opportunities for reclaim or compliance risks.
- Communicate clearly with guests about VAT-inclusive/exclusive prices, especially for international clients reclaiming via the Visitor Refund Scheme.
Future-Proofing: What to Watch in 2025
- VAT changes targeting short-term let platforms could increase direct registration and reporting requirements.
- Environmental levies and recycling obligations for hotels and caterers may interact with VAT on packaging and single-use items.
- More scrutiny from HMRC on bundled package deals and atypical business arrangements.
Conclusion
For UK hotels, restaurants, and holiday letting businesses, diligent VAT management is key to profit and peace of mind. Get the details right, keep systems and staff updated, and seek expert support as your offering evolves. The right VAT know-how is as essential as great service in today’s competitive hospitality market.
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Sources: HMRC VAT Notices 709/3, 700/24, 701/14, ICAEW, AccountingWEB, Hospitality VAT specialists