7.5% VAT rise will slow down Covid recovery for hospitality sector, warns SME tax expert

The Government’s scaling back of its Covid support measure is coming too soon for businesses with little or no cash reserves, a leading tax expert is warning.

The 7.5% rise in VAT for the hospitality industry will slow down the Covid recovery and could even cause a number of unnecessary permanent closures, according to Scott Craig, Partner and Head of VAT at Azets, the UK’s largest regional accountancy firm and business advisor to SMEs.

The original cut, from 20% to 5%, came into effect on 1 July 2020. From 1 October 2021, the rate will increase to 12.5% and this will apply until 31 March 2022. The rate applies to suppliers of restaurant services, hot takeaway food, holiday accommodation and admission to some attractions.

Scott Craig is warning that the hospitality industry has not had sufficient time to benefit from the cut and some businesses could face permanent closure.

He said: “The UK has slowly reopened but remains in a state of uncertainty, and this has severely affected the hospitality industry. As restrictions have lifted, businesses have no doubt benefitted from the reduction in VAT but for some the increase to 12.5% comes too soon.

“Events are now being planned well into 2022 and beyond, and if the reduced rate of 5% had applied for a longer period of time businesses would have improved their financial position and have a better chance of survival. Increasing the VAT rate will reduce the income received by many and this could lead to unnecessary closures of businesses that could have been in better financial health six months from now.”

Scott Craig is urging business owners in the hospitality industry to get ready for the reintroduction of the full VAT rate of 20% on 1 April 2022.

He added: “It is vitally important these businesses are aware of and prepared for the changes. The hospitality sector should ensure it makes the most of the scaled back VAT cut before reverting to the full 20% in April and seeks professional advice if needed.”

Scott Craig, Azets