The VAT rate for hospitality businesses has certainly fluctuated in the past couple of years. With Covid-19 still playing a part in our lives in 2022, it can be tricky to keep up with the changes happening in the industry. Will there be another cut to the VAT rate for hospitality businesses in the future?
VAT rates during Covid-19
In July 2020, in response to the pandemic, the standard rate of VAT for hospitality businesses was reduced to 5%, one of the lowest the industry has ever seen. This then increased to 12.5% on the 1st of October 2021, as the hospitality world began to open back up but Covid-19 continued to negatively impact businesses. The 12.5% VAT rate for hospitality businesses was frozen for the rest of 2021 and into the start of 2022. This cut was put in place to help boost customer demand for restaurants, cafes and bars in the midst of the economic crisis caused by the pandemic.
The standard rate of VAT for hospitality businesses then reverted back to normal on the 1st of April 2022. This increase applied to hospitality businesses, visitor attractions and catering services including restaurants and takeaways, with only some exemptions. This was disappointing for many businesses that were still struggling with the repercussions of the pandemic (which certainly hadn’t gone away).
What is the current VAT rate for hospitality businesses?
Since the 1st of April 2022, the standard rate of VAT for hospitality businesses has gone back up to 20%, as it was before the pandemic. Although this comes as the pandemic seems to be slowing down in terms of cases and levels of concern, it does not mean that business owners are in a good place financially.
Many business owners are worried about the current 20% VAT rate. Despite restaurants, cafes, bars, pubs, and clubs re-opening, not all hospitality businesses have managed to bounce back from the pandemic so quickly. In fact, with inflation rising and the cost of living increasing, many businesses are having to seriously consider their financial performance and future once again as predictions of a recession resound.
What does the future hold for hospitality businesses?
In the current economic climate, many hospitality businesses are understandably hoping that they will receive help and support. The government stepped in when hospitality businesses needed it the most during the pandemic, so will they do it again?
What is clear is that the government will be pulled in many directions when it comes to deciding what sectors or industries need the most help amid the current economic crisis. However, due to the financial strains hospitality businesses have encountered in the past few years, in which many have taken on significant debt just to survive, owners are looking for special assistance.
Increasing costs in terms of energy bills are hitting small hospitality businesses especially hard. These come on top of other high business rates and will certainly lead to many restaurants, cafes, and bars shutting down, especially over the winter period. Businesses are calling for an immediate reduction in VAT during this difficult economic period in an effort to stay afloat.
As well as rising energy costs, the nationwide staffing shortage is having a significant impact on hospitality businesses. There is no doubt that for the hospitality industry to play its part in the UK’s economic recovery and growth, it needs to be properly supported by the government now.
Will there be another cut to the VAT rate for hospitality businesses in the future?
Lots of hospitality business owners are looking to the future for financial security. VAT reductions are urgently needed in light of the rising costs of running a business. These costs have the potential to be crushing for many in the hospitality industry and the country risks losing restaurants, pubs, and cafes this winter.
The recently appointed Prime Minister Liz Truss is reportedly weighing up a 5% cut to VAT. This would apply to all businesses, including those in the hospitality industry. Such a reduction in VAT would take the current standard rate to 15%, something that would give hospitality businesses a boost as customers are encouraged to spend more. The VAT reduction can be passed on to benefit customers through reduced prices, or prices can be unchanged and businesses can benefit directly from it.
However, many hospitality business owners will be hoping to see a more significant cut to the VAT rate, potentially back to the levels during the pandemic. This would see the VAT rate fall back down to 12.5% or lower.
What can hospitality businesses do in the meantime?
Hospitality businesses are facing a multitude of challenges. At such a difficult time it is important to get professional advice. If you think that you or your business will struggle this autumn and winter, speak to an accountant.
As you navigate this challenging period, our hospitality accounting specialists at Steele Financial remain available to assist you. Whether you want to plan for a more financially secure future, or need help with how to manage your hospitality business during the winter period amidst rising costs, speaking to a member of our team is the best way to get help and advice.
To speak to a hospitality accountant about your hospitality business and set goals for the future, get in touch with one of our experts.
