Hospitality VAT: businesses warn of closures and price rises if tax returns to 20%

Business owners and trade bodies have called for a permanent freeze in the level of hospitality and tourism VAT, which rises to 12.5% from today (1 October).

The tax was cut to 5% in July 2020 to support the industry and is due to return to the full pre-pandemic rate of 20% in April 2022.

In a joint statement, UKHospitality, the British Beer & Pub Association (BBPA), the British Institute of Innkeeping (BII), Tourism Alliance and the Association of Leading Visitor Attractions warned that a return to the full rate of tax would derail recovery and lead to price increases for customers.

JD Wetherspoon is to raise its food prices by 40p per meal from today due to the change in VAT, while Sacha Lord, night time economy advisor for Greater Manchester, warned hospitality venues may have to increase prices by up to 10% in October to cover their costs.

A survey of the trade associations’ members, covering 815 businesses operating tens of thousands of venues, found that 60% would expect to see further job losses if the full rate returned next year, while 10% would have to permanently close.

The trade bodies are calling on chancellor Rishi Sunak to make the 12.5% VAT rate permanent in his Budget later this month.

The group said: “Businesses are at a perilous stage of their recovery after what has 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 permanent reduction in VAT] will help protect jobs and continue the support for our hospitality and tourism businesses which contribute hugely to the nation’s economic and social wellbeing.”

Over three-quarters (77%) of the trade bodies’ members surveyed said the reduction in VAT had been important to their survival, while 60% said they would use current rate to invest in their business, keep prices down and to pay suppliers and creditors.

Paul Askew, chef-patron at the Art School restaurant in Liverpool, said today's tax increase put a “fresh dent into bottom lines” of tens of thousands of restaurants, pubs, cafés, nightclubs and bars.

Iain Hoskins, owner of Ma Pub Group, added: “The VAT rise today is massive for a small business like ourselves. Trade is incredibly unpredictable and cost of goods has risen massively with the supply chain issue.

“The double whammy of Covid and Brexit means that many of us will not survive the next 12 months. A sensible approach to VAT will ensure the industry can weather this crucial time.”

Andy Lennox, owner of Zim Braai restaurants in Bournemouth and Poole, has launched a petition calling for the 12.5% rate to be made permanent.

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