MPs' inquiry recommends hospitality VAT remains at 12.5%

An inquiry by a group of MPs has recommended that VAT for the hospitality and tourism sectors remains at 12.5% beyond March.

The All Party Parliamentary Group (APPG) for Hospitality and Tourism said preventing the rate from returning to its pre-pandemic level of 20% would have benefits “across the country”.

This included encouraging businesses to offer lower prices to customers as inflation continues to rise.

The tax was cut to 5% in July 2020 to support the industry during lockdown. It returned to 12.5% in October 2021 and is due to return to the full pre-pandemic rate of 20% in April.

The inquiry heard from business and industry experts including Ranjit Mathrani, chairman of MW Eat, which is behind London restaurants Chutney Mary and Veeraswamy, and Serena von Der Heyde, owner of Georgian House Hotel in London.

Von der Heyde told MPs the reduced rate would help hotels compete with rivals in European destinations where VAT is lower.

She added: “Most of our customers are international. I often hear them say, ‘why are your prices so high? Why are you so much more expensive than Paris?’ I find it quite frustrating because if I compare my prices to a Paris hotelier, I see they are taking more home than I am, yet the customer sees it as more expensive. It is putting customers off buying from us.”

Mathrani said VAT was a “critical issue” to helping businesses recover, adding: “In 2021, we lost £3.5m which works out to be four years of retained earnings.

“We have rate relief being removed, we have VAT, we have wage inflation, we have got energy price increases…we will have no choice but to raise prices.”

The inquiry also cited a UKHospitality member survey that showed nine in 10 businesses believe a lower VAT rate is crucial to their recovery from the pandemic.

It said the lower VAT rate would encourage businesses to reinvest in areas such as employment, leading to greater tax returns for the Treasury after 10 years.

Simon Jupp MP (East Devon, Con), chair of the Hospitality and Tourism APPG, said in the report: “Having sought views across the industry, it’s clear that keeping the reduced rate of VAT will help the hospitality and tourism industry get back on its feet after an exceptionally difficult two years. It’s really important to support the industry to help showcase the best of the UK”.

Vice chair, Alison Thewliss MP (Glasgow, SNP), added: “The UK Government must pay attention to the thorough research provided by this report and take the steps needed to protect the industry.”

The report concluded: “The evidence submitted to the APPG… strongly supports the case for retaining the current 12.5% rate of VAT to support the industry in playing a key role in the UK’s economic recovery and the government’s wider agenda, such as Net Zero and levelling-up… the APPG recommends this policy remains in place beyond March.”

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