Are you ready for the VAT rate increase for the hospitality industry?

The temporary reduced rate for VAT in the hospitality industry which the government introduced following the impact of the Coronavirus pandemic will come to an end on 30th September 2021. As of 1st October the VAT rate for hospitality will increase from 5% to 12.5%. This rate is set to continue until 31st March 2022. 

It’s important that you ensure that your software has been updated to reflect this increase. Sales invoices which are raised for hospitality supplies after this date or payments which are received for the purchase of goods after 1st October will need to include the increase. 

Flat Rate Scheme

If you use the Flat Rate Scheme to simplify your VAT calculations you need to be aware that there will be a change implemented from 1st October to reflect the increase.

  • Catering services such as restaurants and takeaways: will increase from 4.5% to 8.5%
  • Hotel or accommodation: Will increase from 0% to 5.5%
  • Pubs currently at 1% will increase to 4%

For businesses who decided to opt out of the Flat Rate Scheme back in July 2020 there will be the opportunity for them to opt back in on 1st October 2021. 

Changing the VAT rate in Sage

Within your Sage software you can easily make the amendment to reflect the increase in VAT. Simply follow these steps:

Setting up a new tax code in Sage 50 Accounts and Sage Business Cloud Accounting 

To make it clearer and easier to track all entries in your Sage software for the 12.5% VAT rate, we recommend setting up a dedicated nominal code.

If you’re using Sage 50 Accounts 

Go to the Settings menu, then Configuration. The Configuration Editor will appear, click on the Tax Codes tab and then pick a blank tax code to use for the new 12.5% VAT rate (in the example below we have picked T12):

Click Edit.

Enter the rate, tick ‘Include in VAT Return’ and enter a description:

Click OK.

Your new tax code will now appear in the list:

Click OK.

Your new Sage 50 Accounts tax code is now ready to be used and will be included on future VAT returns.

If you’re using Sage Business Cloud Accounting

We expect a new 12.5% VAT rate code to be added to the software.

For further support and advice why not join our Sage Community Support Groups on Facebook?


“Any advice relating to accounts or tax should be sought from your tax accountant. Sage Accounts Solutions Limited will not be held responsible for any loss or damage caused as a result of the information contained herein.”

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