VAT – clear benefits of reduced rate shown by survey

With the increase in VAT for accommodation and restaurants increasing from 5% to 12.5% today (1 October 2021), the  Tourism Alliance (with UK Hospitality, BBPA, AVLA and BII) has issued a press release based on the results of the VAT Survey that was sent to the hospitality industry earlier.

Some of the main findings from the survey are:

• The reduced rate of VAT has been highly important to businesses, with 8 in 10 (77%) stating it is important/very important/crucial
• Businesses will use the reduced VAT rate for an array of productive purposes, including 6 in 10 who will invest in their businesses, half who will use it to meet costs of complying with Covid-secure guidance, and over 1 in 3 who will use it to pay staff or suppliers/creditors
• Similarly, if the reduced rate were to continue to apply beyond April 2022, the saved costs would be used for a series of productive purposes, particularly with 7 in 10 who will invest further in their businesses
• Reverting the VAT level back to 20% in April 2020 could have serious consequences for businesses, with 4 in 10 saying it would likely lead to cutbacks and job losses (up to a fifth of the workforce), with a further 1 in 10 saying it would lead to major cut backs and job losses.

If VAT on tourism and hospitality were to remain at 12.5% indefinitely, it would increase turnover by an average of 8.8% (using mid-point average calculation).

If VAT on tourism and hospitality were to remain at 12.5% indefinitely, it would increase business investment by an average of 12.0% (using mid-point average calculation).