Changes to VAT in the hospitality and tourism sector and how to update your accounting software

Changes to VAT in the hospitality and tourism sector and how to update your accounting software

Last week the Government announced changes to the VAT rate for certain supplies in the hospitality and tourism sector.

From 15 July 2020 a VAT rate of 5% will apply on the supply of food & non-alcoholic drinks by restaurants, bars, pubs, cafes and other such premises across the UK. The same rate will apply to supplies of accommodation and admissions to attractions across the UK. These temporary rates will apply up to 12 January 2021.

It’s a great incentive for the economy and with a few easy steps, managing this change in your accounting software is very easy indeed.


As a Xero user, you will need to use the following rates for any affected supplies that you make or receive:

  • 5% (VAT on income)
  • 5% (VAT on expenses)

You may already have these rates set up and available to use. You can check this in Accounting > Advanced > Tax Rates.

If you do not have both rates available you can easily add new codes by selecting + New Tax Rate. Enter Name, Type & Percentage and click Save.

Sage 50

Sage 50 uses T5 as the default tax rate for 5% VAT. You can check your Tax Codes in Settings > Configuration > Tax Codes.

Please note, however, that Sage can be set up differently for each business and if your T5 is assigned to another VAT rate or purpose, you can easily add a new code.

Start by selecting a code that is not in use and press Edit. Enter the new rate and select the option to Include on VAT return. Click OK and Apply.

Other things to think about

If you use third party sales software such as point of sale software, or an integrated application you will need to change your tax rate in that software too.

Don’t forget, you can add default tax rates to your chart of account and/or contacts to reduce the scope for error.

Unsure if these temporary rates relate to you?

Further guidance can be found here.

If you would like any additional information or help and assistance with updating your accounting software for the temporary VAT changes please don't hesitate to contact our Digital Services Manager, Sarah Smith, on the details below:

Sarah Smith

Digital Services Manager

direct dial: 01942 292527