Hospitality support and VAT

Many businesses in the hospitality sector have struggled over the last year as they have adapted to national lockdowns, restrictions, and the inability to provide their services to the general public.

The Government has provided support packages by way of grants through local authorities, with many businesses, such as Furnished Holiday Lets, receiving £10,000 or £25,000 based on the rateable value of the premises.

There has been a lot of uncertainty amongst business owners regarding how these grant receipts should be treated for both tax and VAT.

Grant income is subject to Income Tax and Corporation Tax in the same way any other trading income is and will need to be reported on the appropriate Tax Returns.

Conversely, the grant income does not represent a payment for a supply of goods or services by the business to another party. These receipts are purely financial support for the business during this difficult period and as such are outside the scope of VAT; this income should not appear on the VAT return at all. In addition, for businesses that are not registered for VAT, this income does not count towards the VAT registration threshold, which is currently £85,000.

If you operate a hospitality business and would like to discuss the treatment of any of the financial support you have received over recent months, please do not hesitate to contact us.

Written by Callum Somers ACCA

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