Under Treasury plans, hospitality and tourism VAT rises to 12.5% from today (1 October) and will return to its pre-pandemic level of 20% in April 2022.
Publicans have already been warned to act now to get ready for the changes in VAT rates, with them more than doubling next month, from 5% to 12.5%.
UKHospitality, the British Beer & Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions are warning that unless VAT remains permanently low at 12.5%, the Government risks derailing the recovery at a time when businesses are still in survival mode.
Hardest hit sectors
Across the course of the pandemic, hospitality and tourism were the hardest hit sectors, with spend down £100bn, 12,000 businesses permanently closed and 660,000 jobs lost. However, the reduction in VAT helped protect hundreds of thousands of jobs and allowed many businesses to stay open and serving customers when permitted to trade, they said.
A survey of the trade associations’ members covering 815 businesses operating tens of thousands of venues found the reduced rate of VAT has been vital to businesses, with over three-quarters (77%) stating it is important or crucial to viability.
Businesses said they will use the current reduced VAT rate for an array of productive purposes, including six in 10 that will invest in their businesses, therefore, keeping prices more affordable for customers along with paying suppliers and creditors.
Serious consequences
Returning VAT back to 20% in April 2022 would have serious consequences, the research revealed with six in 10 businesses saying it would likely lead to cutbacks and job losses
In a joint statement, the trade bodies said: “Businesses are at a perilous stage of their recovery after what’s been a devastating 18 months. Costs are increasing and there are numerous operational challenges for them to deal with, specifically around labour and product supply. A reduction in VAT has helped many of our businesses survive to this point and was most welcome. However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses.
“We’re now calling on the Chancellor to commit to introducing a permanent 12.5% rate of VAT in his upcoming Budget, later this month. This will help protect jobs and continue the support for our hospitality and tourism businesses which contribute hugely to the nation’s economic and social wellbeing.”
