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Morning Briefing for pub, restaurant and food wervice operators

Fri 1st Oct 2021 - Trade bodies call for permanent lower VAT rate of 12.5% to avoid derailing sector’s recovery
Trade bodies call for permanent lower VAT rate of 12.5% to avoid derailing sector’s recovery: Sector trade bodies have joined forces to call on chancellor Rishi Sunak to introduce a permanent lower rate of VAT for the hospitality and tourism industries, helping to safeguard their future, protect jobs and to accelerate the UK’s economic recovery. Under Treasury plans, hospitality and tourism VAT rises to 12.5% from today (Friday, 1 October) and will return to its pre-pandemic level of 20% come April 2022, just as next year’s peak season begins for much of the sector. Now the trade bodies – UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions – are warning that unless VAT remains permanently low at 12.5%, the government risks derailing the recovery at a time when businesses are still in survival mode. If VAT on tourism and hospitality were to remain at 12.5%, analysis suggests it would increase business turnover by an average of 8.8% and boost business investment by an average of 12%. A survey of the trade associations’ members covering 815 businesses operating tens of thousands of venues found the reduced rate of VAT has been vital to businesses, with more than three-quarters (77%) stating it is important or crucial to viability. Businesses will use the current reduced VAT rate for an array of productive purposes, including six in ten who will invest in their businesses; keeping prices more affordable for customers; along with paying suppliers and creditors Similarly, if the reduced rate were to continue to apply beyond April 2022, 70% would use the saved costs to maintain business investment. Returning VAT back to 20% in April 2022 would have serious consequences; six in ten businesses said it would likely lead to cutbacks and job losses; with one in ten saying it could cause their business to close. The rise would also risk triggering price increases for consumers In a joint statement, the trade bodies said: “Businesses are at a perilous stage of their recovery after what’s been a devastating 18 months. Costs are increasing and there are numerous operational challenges for them to deal with, specifically around labour and product supply. A reduction in VAT has helped many of our businesses survive to this point and was most welcome. However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses. We’re now calling on the chancellor to commit to introducing a permanent 12.5% rate of VAT in his upcoming Budget, later this month. This will help protect jobs and continue the support for our hospitality and tourism businesses which contribute hugely to the nation’s economic and social well-being.”

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