VAT rise likely to hurt hospitality recovery and may cause more permanent closures
The upcoming 7.5 per cent VAT rise will slow down Covid recovery for the hospitality sector and may lead to a number of additional closures, a SME tax expert told City PM today.
The Government’s scaling back of its Covid support measure is coming too soon for businesses with little or no cash reserves, according to Scott Craig, partner and head of VAT at Azets, one of the UK’s largest regional accountancy firm and business advisors to SMEs.
The 7.5 per cent rise in VAT for the hospitality industry will slow down the Covid recovery and could even cause a number of unnecessary permanent closures, Craig said this afternoon.
The original cut, from 20 per cent to 5 per cent, came into effect on 1 July of last year.
However, from tomorrow, the rate will increase to 12.5 per cent and this will apply until 31 March of next year, affecting suppliers of restaurant services, hot takeaway food, holiday accommodation and admission to some attractions.
The hospitality industry has not had sufficient time to benefit from the cut and some businesses could face permanent closure, Craig warned..
“The UK has slowly reopened but remains in a state of uncertainty, and this has severely affected the hospitality industry,” he said.
As restrictions have lifted, businesses have no doubt benefitted from the reduction in VAT but for some the increase to 12.5 per cent comes too soon.
Scott Craig, partner and head of VAT at Azets
“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, Craig continued.
“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,” he concluded.