The government has responded to petition which called for the reduction in VAT on Hospitality to 10% from the current rate of 20% to allow Hospitality to survive the storm – or risk losing a large proportion of the industry to it.
The petition highlights that the current tax system is disproportional and should be changed alongside changes in tax on supermarkets and online sales.
The petition follows a letter sent in February 2022 to then chancellor Rishi Sunak, signed buy more than 250 hospitality business leaders who urged the Government to keep VAT at 12.5% which was introduced during the pandemic., to help the recovery of fragile hospitality and leisure firms.
The 2022letter to Chancellor Rishi Sunak warned that the return to 20% will “exacerbate the squeeze on household finances”.
The issue has strongly been a “bone of contention”, since the hospitality sector in the United Kingdom is one of the highest in Europe, however the government has yet again refused to consider a cut.
Government responded:
This response was given on 3 April 2023
The VAT relief for the hospitality sector was a temporary measure designed to support the viability of sectors that had been severely affected by COVID-19. There are no plans to reintroduce it.
VAT is the UK’s third largest tax forecast to raise £161 billion in 2023/24, helping to fund key spending priorities such as important public services, including the NHS, education, and defence. The previous VAT relief for tourism and hospitality cost over £8 billion and introducing a 10 per cent rate would come at a significant further cost.
It was appropriate that as COVID-19 restrictions were lifted and demand for goods and services in these sectors increased, the temporary tax reliefs were first reduced and then removed in order to rebuild and strengthen the public finances.
However, the Government recognises the impact of COVID-19 on the tourism industry, which is why the Government published the Tourism Recovery Plan to help the sector return to pre-pandemic activity levels as quickly as possible. Since the start of the pandemic, over £35 billion has been provided to the tourism, leisure and hospitality sectors in the form of grants, loans and tax breaks.
The Government also understands businesses are struggling with the cost-of-living crisis. At Autumn Statement 2022, the Government announced a package of support worth £13.6 billion for businesses over the next five years. Together with the revaluation, this package ensures bills will more accurately reflect current market values whilst protecting businesses from large bill increases. Businesses in the retail, hospitality and leisure sectors, including pubs, will receive a tax cut worth over £2 billion in 2023-24. Eligible properties will receive 75 per cent off their business rates bill, up to a cap of £110,000 per business. The Government has also committed to freezing the multiplier for a further year, which is a tax cut worth £9.3 billion to businesses over the next 5 years, and means all bills are 6 per cent lower, before any reliefs or supplements are applied, than without the freeze.
On 9 January, the Government also announced that it would be launching a new energy support scheme for businesses, charities and the public sector. The Energy Bills Discount Scheme (EBDS) will provide all eligible businesses and other non-domestic energy users with a discount on high energy bills for 12 months from 1 April 2023 until 31 March 2024. It will also provide businesses in sectors with particularly high levels of energy use and trade intensity with a higher level of support. This follows an unprecedented package of support for non-domestic users through the Energy Bill Relief Scheme last winter.
EBDS will help those locked into contracts signed before recent substantial falls in the wholesale price manage their costs and provide others with reassurance against the risk of prices rising again.
The Government recognises the important contribution pubs and hospitality venues make to our society and is committed to supporting this sector through the duty system by reducing the tax burden on products sold in these venues. This is why, as part of the historic alcohol duty reform, the Government announced that it will ensure a duty differential between on and off-trade, reducing the duty on draught beer and cider by 9.2% and draught wine, spirits and other fermented products by 23% from 1 August 2023.
Further, on 19 December, the Government announced that the freeze to UK alcohol duty rates has been extended for six months to 1 August 2023. This decision was made to provide certainty and reassure pubs and alcohol producers as they face a challenging period ahead.
While the Government has no current plans to reduce the rate of VAT for the hospitality sector, all taxes will continue to be kept under review.
HM Treasury
