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Xero ready for UK VAT change

Posted 10 months ago in Advisors by Marcus Pinny
Posted by Marcus Pinny

The chancellor recently announced a temporary cut in the VAT rate from the standard 20% to the reduced rate of 5% for certain supplies in the hospitality and tourism sector. The aim of the change is to boost the economy and encourage consumer spending in the sector.

We’re pleased to say that we’ve already got the product capabilities to apply these changes in Xero – read on to find out more about the VAT changes coming through and how to apply these in Xero.

Key changes announced 

  • Temporary VAT cut for food and non-alcoholic drinks from 15 July 2020 to 31 March 2021 to support businesses and jobs in the hospitality sector. The 5% rate of VAT will apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. 
  • Temporary VAT cut for accommodation and attractions from 15 July 2020 to 31 March 2021 to support businesses and jobs. The 5% rate of VAT will apply to supplies of accommodation and admission to attractions across the UK.

Please visit the gov.uk website for further guidance. 

How to apply the VAT cut in Xero

For most of you, the reduced 5% VAT rate is already available in Xero as shown below – all you need to do is select the appropriate VAT rate for affected supplies as instructed by HMRC from 15 July. More information can be found in our support article

If these rates don’t appear in your Xero account, or if you prefer to identify the 5% VAT rate for hospitality, then you can easily create them. Simply follow these instructions to add a new tax rate

How to set up default VAT rates in Xero

To save you time on applying the reduced 5% VAT rate for every transaction, Xero enables you to set up default rates. You may wish to change the following areas:

  • Chart of accounts 
  • Customer and supplier contacts
  • Products and services 
  • Bank rules
  • Repeating invoice templates

If you have any questions about which areas you should update, please contact your accountant or Xero support. You can also check out our support article for more information about creating and accessing your cases.

Lastly, if you’re a business using different software products such as hospitality products that integrate with Xero, please check if they’ve got capabilities to deal with reduced VAT sales and purchases.

Visit our dedicated site for more resources, webinars and updates to help you navigate the COVID-19 pandemic. 


hotel supplies auckland
September 28, 2020 at 11.46 pm

Thanks to the author for sharing such a great post. The article was very well written and providing xero ready for uk vat change. It can be really great for people like me who are looking for grabbing more knowledge about it.

Beeny Atherton in reply to hotel supplies auckland Xero
September 29, 2020 at 12.24 pm

Hi – we’re thrilled to hear that you found our article interesting. Thank you so much for sharing your feedback with us.

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