VAT Rate Changes for Farmers Providing Accommodation

LHP - Farming VAT Changes

Changes to VAT rates for farmers providing accommodation & catering from 1 October 2021.

Author: Rhys Jones (FCCA), LHP Associate Director

Rhys Jones

Since 15 July 2020, a temporary 5% reduced rate of VAT has applied to certain standard rated supplies relating to hospitality, holiday accommodation and attractions. This has resulted in VAT savings for farmers who have diversified into activities such as the provision of caravan and camping pitches, glamping and furnished holiday lets.

The 5% rate will come to an end on 30 September 2021 with a new temporary rate of 12.5% applying for the subsequent 6 months from 1 October 2021 until 31 March 2022. The VAT rate will then revert back to 20% for supplies from 1 April 2022.

Key Issue

Farmers will need to determine the correct rate of VAT to apply for supplies that straddle the date of change in the VAT rate. For holiday accommodation and the provision of catering services, the basic tax point is the date when the supply occurs i.e. when the meal is eaten or cottage stayed in.

However, the time of supply can be brought forward if either an invoice is raised or payment made in advance of the supply taking place. 

Practical Example

A booking is made on the 15 September 2021 (before the VAT rate change on 1 October) for accommodation in November with the total amount payable being £400. A 25% deposit is due on the 15 September to confirm the booking with the balance payable in November. The total VAT payable in this instance would be calculated as follows:

The applicable VAT rate on the deposit of £100 paid in September is 5% so VAT of £4.76 (1/21 x £100) would be due. The VAT rate applicable in November on the balancing payment is 12.5% so VAT of £33.33 (1/9 x £300) would be due. The total amount of VAT payable on this booking is therefore £38.09 (£4.76 + £33.33).

Alternatively, the farmer could issue an invoice for the full amount to be charged for the booking on 15 September meaning the VAT rate applicable would be 5% on the whole amount even if payment is not made until after the rate change. In our example, the VAT due would therefore be £19.05 (1/21 x £400). This therefore results in a VAT saving of £19.04 (£38.09 – £19.05) on this booking.      

Tax Tip

Farmers should be encouraging early payment of deposits and full balances before the VAT rate increases occur. Although not usual in this sector, the example above also shows how VAT savings can be achieved by issuing invoices for the full amount payable on the date that the booking is made, if this is before the date that the VAT rate increases. Farmers could also incentivise their customers to pay early by passing on some of the VAT savings to them by offering a discount for early payment. 

Let’s Talk

For help planning your farming VAT, please don’t hesitate to get in touch with our farming specialist Rhys Jones on Let’s Talk.

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