With the Spring Statement being announced today, concerns about the Government’s proposal to raise VAT for the hospitality sector increases, with industry leaders constantly pleading to retain the rate.
On 8 July 2020, the UK Government announced a temporarily reduced rate of five per cent VAT for the sector between 15 July and 12 January 2021. This period extended until 31 March 2021, and then for a second time, until 30 September 2021.
To help with the transition back to the standard rate, the Government applied a 12.5 per cent rate for the subsequent six months, ending it on 31 March 2022.
While the return to the original 20 per cent rate was implied when the change was first announced, the public’s support for the reduced rate is going strong as 83 per cent of respondents from a study by YouGov agree the VAT should remain at the current reduced rate.
The demand to keep the rate as it is is not only to help the sector’s economic recovery but also because of the growing living costs, as 67 per cent of people are cutting back on meals out.
What does it mean for the industry?
Returning the VAT to 20 per cent in April would have a detrimental effect on one of the hardest-hit sectors by the pandemic, which is still recovering from the impact of Covid and Brexit.
Despite publishing The Tourism Recovery Plan and planning to kickstart the economy last year, the Chancellor’s decision to increase the VAT rate worries industry professionals that all the efforts to bring the sector’s performance to pre-pandemic levels would dismantle and further fuel inflation across the country.
Maintaining the current rate would allow businesses in this sector to fully recover, helping protect and generate new jobs, and reduce debt acquired following the pandemic.
Additionally, it would also contribute to the growth of inbound and domestic tourism, consequently improving the overall country’s economy and putting the UK in a competitive position compared with other European destinations with far lower tax rates, such as France, Spain and Germany.
For help and advice with related matters, please get in touch with our travel and tourism finance team today.
