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. In July 2020, VAT was reduced to 5% on hospitality sales. This rate applied to food and non-alcoholic drink sales in hotels, pubs, restaurants, and cafes. On 1st October 2021, the VAT rate was increased to 12.5% and will be increased again to 20% on 1st April 2022. This increase will have a devastating effect on all pubs, restaurants, and cafes.
Costs in the hospitality sector are currently out of control. Wage and food costs have increased hugely. Some estimate the overall increase to have been between 14% and 18% in the last six months alone, and this is before taking into account energy costs which have just about doubled. Further, because most hospitality businesses are premises based, the sector is again paying business rates which are an unfair and out-of-date tax in this internet age. To cap it all, the government has just announced a 2.5% increase in National Insurance starting on 1st April 2022 of which half has to be borne by businesses.
Businesses in the hospitality sector are now at a stage where they cannot absorb any more cost rises. Sales prices have already gone up and may well have to go up further.
On top of this, the government intends to increase the VAT rate on hospitality food sales by 7.5% to 20% on 1st April 2022. This increase will mean much higher prices when you eat out.
Because of these higher prices, it is likely you will eat out less often. The overall effect will be that revenues in the hospitality sector will fall at a time when its costs are rising fast. And this is happening when, because they were locked down for so long, the finances of the small businesses in this sector have never been weaker. They are less able to take the economic shock which such a significant VAT increase will cause.
It is certain that many of the smaller pubs, restaurants, and cafes near you will not be able to survive a VAT increase at all, and certainly not at this level. The result could well be a smaller overall tax take for the government, thereby defeating what they are setting out to do.
The hospitality sector is the 3rd largest employer in the UK. It aspires to be a high-pay sector. In fact, wages are estimated to have gone up by around 20% in the last few months. However, it cannot afford to pay both high wages and high taxes.
Our pubs, restaurants and cafes are the life blood of many of our communities. If you value them, please sign the online petition at:
demanding that VAT, for the hospitality sector, stays at 12.5%
Also, please share as we need a huge response so that the government takes notice.