VAT reduction scheme extended for hospitality and tourism sectors

30 September, 2020
Alex Demetriou

As previously discussed in our blog we had hoped that the Government would maintain a level of VAT disparity within our industry. Unlike our colleagues in retail we provide food as an experience by creating dishes and delivering great service. To achieve this, we need greater staff numbers than retailers, so you hope the contribution of NI and pension offsets the requirement for VAT.

On the 24th of September the chancellor, Rishi Sunak, announced he would be extending the reduction in VAT for the hospitality and tourism sectors; holding it at the 5% rate until the 31st March 2021. Despite welcoming the extension, I can’t help but feel that the measures need to go further.

We need to know clearly whether the rate will return to 20% at the end of March or whether the chancellor would be willing to extend the 5% rate again or indeed is there a consideration to retain a disparity between the VAT rate on food and alcohol. The current extension only takes us until the end of winter which the Prime Minister suggested restrictions would continue until.

Business owners don’t just plan weeks or months in advance. We look years ahead, so a clear idea of how 2021 will look in terms of government VAT policy is what is desperately needed. If you were looking to invest in your business or perhaps open another site, the commitment of a lower VAT rate may be the deciding factor. Whilst I accept it is difficult for the government to look too far ahead, many of our European neighbours operate at lower VAT rates on leisure and hospitality and the UK adopting this method could give the industry long term stability.

As Emma McClarkin, Chief Executive of the British Beer & Pub Association stated after the announcement.

“The VAT cut extension on food and soft drinks will help our sector and it is great to see the Chancellor answer our urgent call for this. However, the extension only takes us through to the end of the current restrictions – it needs to be much longer to help our sector recover.”

We also noted that the Chancellor missed the opportunity to extend the reduced VAT levels to include alcohol which could have been the lifeline to many wet and food led establishments that are currently hovering on a life raft. Too many good operators are having to re-invent their offering by the measures introduced or potentially lose their establishments and livelihood. It is clear that the government are only looking to support food led establishments, but the traditional pub is as British as a Sunday Roast.

The next six months will be trying for us all, with winter, the threat of a second wave, flu season, poor weather and a predicted slow Christmas for the trade we don’t know how many venues will make it through to the next tax year, and even of those that do how many will be able to continue trading once VAT returns to 20% on the 1st of April 2021.

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