Hospitality VAT returns to 20%

Many in the hospitality sector were hoping that the Chancellor would extend the 12.5% reduced rate that has applied since 1 October 2021 but, as scheduled, the rate has reverted to 20% from 1 April 2022.

The reduction in VAT was given to VAT-registered businesses from the hospitality, hotel and holiday accommodation sectors to financially support them during the initial lockdown of the Covid-19 pandemic. VAT originally dropped to 5% in July 2020 with the rate increasing to 12.5% in October 2021.

The Federation of Small Businesses (FSB) stated that the increased VAT is just another hit to businesses still struggling to recover from the pandemic. In addition, 31 March is the final day that businesses can pay back in full deferred VAT covering the period to June 2020.

UKHospitality stated that the move ‘might prove fatal’ for business owners and that the removal of the lower rate lifeline ‘dashes the hopes that many businesses could begin to recoup some of the losses of the last two years’.

Kate Nicholls, chief executive, UKHospitalty said: ‘Locking in VAT at 12.5% would have given hospitality businesses a major boost and helped the sector in its ambition to lead the UK back to post-Covid prosperity.

‘As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.’

Described by the FSB as the ‘April flashpoint’ from 1 April the national living wage rate for over 23s goes up to £9.50, the 66% business rates discount comes to an end, and the requirement for businesses to make their VAT returns Making Tax Digital (MTD) compliant is also introduced.

From 3 April, Statutory Sick Pay (SSP) is also set to rise to £99.35, and from 6 April the 1.25% increase to National Insurance contributions (NICs) hits employees, employers, and sole traders, as well as a rise in the dividend rate.

The FSB highlights that according to statistics from the Office of National Statistics (ONS) Covid-19 infection rates are rising with one in seven business not currently trading at full capacity due to infection rates.

The current cost of living crisis, rising Covid cases, and the rapidly increasing inflation and energy costs, are causing ‘huge anxiety’ for businesses across the UK with 5%, which is around 250,000 businesses, fearing ‘imminent collapse’, FSB warned.

Martin McTague, national chair, FSB, said: ‘There’s no use hiding from the facts though: this April flashpoint will push some firms to the brink.

‘The spiralling energy costs are causing huge anxiety for small firms trying to navigate the energy market remaining sandwiched between domestic consumers protected by a price cap, and big corporates, which have the leverage to secure the best deals.

‘With so many business owners and employees now forced to isolate as Covid infection rates soar, we and the TUC are urging the government to launch a permanent a sick pay rebate that covers all absences to protect livelihoods.’

Affected businesses should ensure that their pricing policies and internal systems and processes are updated for the 1 April 2022 change in VAT rate.

Please talk to us if you need any assistance with your VAT affairs.