26 May 2022

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VAT holiday on hospitality is grinding to a halt!
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VAT holiday on hospitality is grinding to a halt!

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A bit like vaccine – the hospitality VAT shot in the arm is starting to wear off

When the pandemic hit hospitality so very badly, the Chancellor introduced a reduced rate of 5% on restaurant food and hotel room charges.

The reduction was very well received and there was a great clamour to try and persuade the Chancellor to leave the 5% rate in place. Unfortunately, it has run its course and been replaced as of today, 1st October, by a new reduced rate, this time of 12.5%. This is set to run until 31st March 2021 when the rate will revert back to the standard rate of 20%.

So whilst the VAT holiday is coming to an end, it has a limited period yet to run at a reduced rate so it is time to make hay over Christmas.

What is very unclear is what the effect of the reduction of VAT has been. Has it been to the benefit of the customer or has it been to the benefit of the restaurant owners? There was a significant debate at the time between restaurateurs as to who would be receiving the benefit and some establishments said that they thought this was supposed to be a gift for them from the Chancellor to help them to recover whilst others said that this was a way of reducing prices to encourage the public to come back out to eat again. But it is also known that in some instances prices have gone up so it would probably not be out of the way to suggest that even where operators said it was for the public benefit, prices crept up to enable margins to be maintained.

The reality is we may never know! But now comes the crunch. Are we going to see menu prices increase? To make up the loss a food outlet would have to increase its menu prices by 7.14% or £7.14 on every £100. So in fact it may be possible to determine who was doing what with their prices.

The reduction in VAT never applied however to alcoholic drinks; it did apply to non-alcoholic drinks so the permutations of what the VAT might have been and might still be in relation to your bill for eating out would be quite considerable.

However the buzz in the trade is that restaurateurs will be putting up their prices, not just because of the increase in VAT but because raw costs are also increasing at a startling rate as well. So who will pay? Well, the consuming public of course and if they don’t insolvencies will ensue.

1st October is also a watershed because the furlough scheme has now ended and decisions have had to be made as to whether staff would now be fully employed again or just made redundant. It will become clear over the next few weeks which way the employment is going and it is a strange irony that there are many many job vacancies at the moment and no doubt many people to fill them but the problem will be trying to fit the round pegs into square holes; those that won’t fit will still end up unemployed while some employers are tearing out their hair to get enough staff.

So if you are in business in hospitality these changes will affect you; make sure you realise that the chancellor will be taking a bigger bite of your takings from today and work out whether you need to increase your price or you can absorb the difference.

But did you know that if you are in a hotel and use room service, you pay VAT at the full rate of 20%? Not many people realise that; it is one of those extraordinary quirks of VAT regulations.

It is a strange world we live in!

Adrian Leopard     01-10-21

Photo Angelo Pantazis

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