The trade reacts to the government’s VAT increase

By James Bayley

Published: 24 March, 2022

Today, the government has officially returned the VAT rate for the hospitality and tourism industry to 20% (24 March).

According to trade body UKHospitality, the increase will jeopardise jobs and restrict the sector’s efforts to stifle price rises for consumers and lead the UK’s post-pandemic recovery.

UKHospitality chief executive Kate Nicholls said: “This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid and facing a tidal wave of rising costs. For many businesses, removing the lifeline of a lower rate of VAT might prove fatal. For a heavily, disproportionately taxed sector, a return to 20% dashes the hopes that many businesses could begin to recoup some of the losses of the last two years.”

The return to 20% would suggest the sector has fully recovered from the pandemic, but the reality is very different according to some business owners and entrepreneurs.

Sarah Travell, founder and CEO of Virgate, the tech-led accountancy and advisory firm, said: “The government, with the removal of nearly all Covid-related support and VAT returning to 20% for hospitality, appears to be signalling the end of the crisis and a return to business-as-usual. Yet it feels anything but; companies continue to work to repay accrued debt and repair balance sheets. At the same time, they are dealing with genuinely unprecedented cost inflation across every line of the P&L, from energy, fuel, the cost of food, and drink, and employment.”

Much like the rest of the trade, The Scottish Licensed Trade Association (SLTA) hoped that VAT would be frozen at 12.5%.

Paul Waterson, an SLTA spokesperson, commented: “There is no doubt that returning to 20% will potentially jeopardise jobs and lead to price hikes when the cost-of-living crisis is growing, and bills for everyone are increasing."

Nicholls also acknowledged some positive elements of the Chancellor’s statement: “The reform of the Apprenticeship Levy, to focus on improving productivity, is something on which we have lobbied the government for five years or more and will be widely welcomed by our sector.

“Additionally, the generous increase in the NIC threshold for employees is a very positive move and will boost disposable income, although extending that measure to employers would help hospitality businesses to recruit and retain talent.”

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