Britons struggling due to Covid face ‘another expense’ as VAT changes to come into force

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VAT increase for hospitality sector discussed by Paul Lewis

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Whist discussing the end of the furlough scheme, Paul Lewis on BBC Money Box read out a listener’s tweet which stated “in the hospitality sector, VAT is going up from five percent to 12.5 percent also on the 1st October”. “That will be another expense for the hospitality industry as well as having to take people back on full pay and not having a wage subsidy.”

Businesses benefited from the cut in VAT from 20 percent to five percent in July last year.

The VAT rate of five percent was only ever going to be temporary.

It was introduced on July 8, 2020 to encourage customers back to the hospitality sector following countrywide lockdowns.

This cut is coming to an end and VAT is set to increase to 12.5 percent from Friday.

Meanwhile, the furlough scheme will end after 19 months of upholding jobs across the economy.

It could mean eating out is about to become more expensive, just like most people’s everyday food shop already has.

Economists and tax specialists say the increase in VAT will be felt particularly by the hospitality industry and could threaten the survival of some of those businesses which are just recovering from the lockdown.

The rise to 12.5 percent will remain in place until March 31 next year and will then return to the full 20 percent rate.


The lower rate applies to suppliers of restaurant services, hot takeaway food, holiday accommodation and admission charges for some attractions.

Scott Craig, partner and head of VAT at Azets – the UK’s largest regional accountancy firm and business adviser to SMEs – is warning that the hospitality industry has not had sufficient time to benefit from the cut.

He said: “The UK has slowly reopened but there is considerable economic uncertainty and the hospitality industry is facing the brunt.

“Businesses have no doubt benefitted from the reduction in VAT but the increase to 12.5 percent comes too soon.

“Events are now being planned well into 2022 and beyond, and if the reduced rate of five percent had applied for longer, many businesses would have improved their financial position and have a better chance of survival.

“Increasing VAT will reduce their income and unfortunately trigger unnecessary closures that could have been avoided if the rate had been held for another six months.”

Laura Suter, head of personal finance at AJ Bell, said when VAT was reduced last July, publicans and hoteliers didn’t necessarily pass the cuts on.

She explained: “Many hotels and restaurants decided to keep this reduction for themselves rather than pass it on to customers.

“This was to help shore up their finances post-pandemic.

“With food and energy costs rising it has provided a cushion for businesses and may have helped them put off increasing prices.”

However, this could now cause problems as hospitality businesses will now have to find the money from somewhere.

Ms Suter added: “But once the rate shoots back up it will be another squeeze on margins for businesses and means we’ll probably see higher prices when going out to eat or booking a trip away.”

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