Reduced Hospitality VAT is changing – are you ready?
The hospitality and tourism sector has been the most hard-hit during the pandemic. In order to help businesses within this sector start to recover the government announced they would be extending the VAT cut from 20% to 5% until 30th September 2021. A cut that was introduced during the height of the UK’s pandemic on 8th July 2020. After the 30th September businesses within these sectors will be eased back to the standard VAT rate of 20% by first only having to pay an increase from 5% to 12.5% until 30th April 2022.
The VAT reduction applies to food and non-alcoholic drink sales. This extension is estimated to help 150,000 businesses and protect 2.4 million jobs through the winter period.
The benefit to businesses?
While businesses within these sectors have welcomed the extension many in the industry want this cut to be made permanent. Businesses feel while an interim increase of 12.5% is better than having to immediately go back to the standard rate of 20% any increase is going to negatively impact an already troubled industry.
Trade body UK Hospitality is already calling on businesses to unite and lobby MP’s to make this cut permanent. With mountains of debt piling up for businesses and an already difficult trading environment, which looks set to continue well into the future, they are looking to tackle this issue head-on with government officials and are already in the final stages of their lobbying campaign.
The benefit to the consumers?
While some consumers may feel the benefits of a reduced VAT rate research shows this is not always likely to be the case. A reduction in the French restaurant VAT rate in 2009 from 19.6% to 5.5% was mostly retained by the business owners. An Irish tourism VAT rate cut from 13.5% to 9% following the Euro currency crisis in 2011 was again largely retained by the providers. Much research supports that cuts in VAT are retained by business owners while any increases are passed onto consumers.
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