20% VAT hike comes into force

By Nikkie Thatcher contact

- Last updated on GMT

Lower rate: VAT has been at 12.5% on food, soft drinks and accommodation since October 2021 (image: Getty/valiantsin suprunovich)
Lower rate: VAT has been at 12.5% on food, soft drinks and accommodation since October 2021 (image: Getty/valiantsin suprunovich)

Related tags: Legislation, Finance, Vat, Government

The return of a 20% VAT rate on food, accommodation and soft drinks is implemented from today (Friday 1 April).

The Government originally cut VAT to 5% in July 2020 and it rose to 12.5% in October 2021.

This increase back to 20% comes after many voices from the sector campaigned for the lower 12.5% rate to remain in place, in a bid to help the trade recover from the pandemic and aid its battle against rising costs.

It included a letter spearheaded by trade body UKHospitality (UKH), signed by 250 industry leaders​ calling on Chancellor Rishi Sunak to keep the 12.5%.

The letter also highlighted the success of the lower rate VAT in helping businesses survive “the ravages of the pandemic”. It also stated the policy has allowed businesses to keep their prices as low as possible in the face of significant cost pressure to the sector. 

Signatories to the letter include individual businesses, SMEs and huge multi-national enterprises, including JD Wetherspoon, Marston’s, Punch Pubs and Rekom.  

Real setback

Furthermore, JD Wetherspoon (JDW) boss Tim Martin blasted the Government plans to raise the VAT​ and the British Beer & Pub Association (BBPA) also called on Sunak​ to help the sector prior to his Spring Statement.

However, in the Spring Statement earlier this month (Wednesday 23 March), he made no reference to keeping the lower rate​.

Trade bodies reacted with disappointment with UKH chief executive Kate Nicholls calling it a “real setback” for hospitality firms still suffering the repercussions of Covid and warned the removal of the lower rate “might prove fatal”.

Night-time economy adviser for Greater Manchester and operator Sacha Lord also warned of the “worst cost of living crisis since records began”.

He wrote: “Keeping the VAT frozen at 12.5% was an absolutely vital move if we were to protect this fragile recovery, support operators that are currently staring down the barrel of bankruptcy and closure and protect jobs across the hospitality sector.”

Immense financial pressures

BBPA chief executive Emma McClarkin outlined the impact of VAT returning to 20% will have on businesses.

She said: “The rise in VAT is anticipated to cost our sector more than £500m – a cost businesses will be forced to make back elsewhere.

“With energy prices soaring and uncertainty around supply chains due to the Ukraine crisis, the cost of doing business in 2022 is fundamentally different than 2019 and pubs and brewers are still under immense financial pressures.

“We need the Government to recognise this isn’t the end of difficulties for our sector and we will continue to call for reduced business rates to help our sector get fully back on its feet.”

Related topics: Legislation

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