On-trade calls for hold on VAT rise

By James Bayley

Published: 11 March, 2022

In April, the VAT on hospitality sector purchases will return to the pre-pandemic rate of 20%. The increase follows two years of reduced rates for the industry; in July 2020, rates were reduced to 5% before rising to 12.5% in October last year.

The return to the pre-pandemic rate suggests we are now living in a post-Covid world, but the latest data on London on-trade footfall would hint otherwise.

According to CGA and Wireless Social data, London hospitality sales and check-ins were down 11% and 38% on pre-Covid levels, respectively, in February.

An increase in VAT is likely to increase the rate of inflation, which is why hospitality leaders are urging the government to freeze the 12.5% VAT rate levied on food, accommodation and tourism – and not raise it to 20% after the March Budget.

As a result, the drinks trade will be affected twofold; alcohol suppliers to the on-trade will have to contend with rising costs and consumers of alcohol may reduce their spending due to inflation.

According to a YouGov poll commissioned by UKHospitality, just one in five people say VAT should return to 20%.

The representative study of 1,743 UK adults revealed the extent of the cost crunch, with 92% of respondents saying their cost of living has gone up since before the pandemic, and two-thirds (67%) saying they are cutting back on meals out as a result.

The UK already has one of the highest tax rates for food and accommodation in Europe. For example, in France and Spain, the VAT rate is set at just 10%, and in Germany and Belgium, just 7% and 6% respectively.

Keeping VAT in the UK at 12.5%, while still considerably higher than in competitive markets, might ensure the UK becomes a more affordable desirable destination for foreign and domestic tourists.

UKHospitality CEO Kate Nicholls said: “After two extremely challenging years and, with the unfolding cost-of-living crisis, there is now a very strong case for the Government to use the next Budget to deliver the vital support that these surviving and indebted businesses need, to protect jobs and defend the current fragile recovery.

“Holding VAT at 12.5% will provide vital support for thousands of small, local, community businesses. It will protect jobs at a pivotal moment for the recovery.”

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