How will the return of the 20% VAT rate affect hospitality?

Introduction

In the Chancellors Spring Statement he announced that the VAT rate for hospitality businesses would return to 20% as the temporary 12.5% rate ends. This decision has sparked outrage from the hospitality sector as they look to recover after the disturbance of the Omicron variant over the Christmas period and was one of, if not the most affected sector during the pandemic. Furthermore, the sector is attempting to recover during a time where inflation is rapidly increasing the costs of supplies generally.

Hospitality businesses will have difficult decisions to make

Due to the increased VAT rate, hospitality businesses will have to decide whether to absorb the hit of the rising costs themselves in order to retain customer loyalty, or increase costs but run the risk of losing customers due to pressures on the cost-of-living.

Some hospitality businesses will be forced into the latter as many do not have sufficient cash reserves. It has been reported that one in three hospitality businesses have less than a months worth of free cash reserves. This means that hospitality businesses will likely be forced to increase their prices which may cause a decrease in demand.

Some hospitality businesses who are fortunate enough to have available cash reserves have confirmed that they plan to shoulder some or all of the cost in order to retain and increase customer loyalty going into the crucial summer months, one of them being London based pizza chain, Four Hundred Rabbits. They have said that they considered increasing their prices but have choose not to as they did not want their customers to feel that eating out or ordering a takeaway was too much for them.

Should the Chancellor reconsider his decision?

Michael Kill, CEO of the Night Time Industries Association said that the Spring Statement announcement demonstrated the Government’s disengagement and lack of understanding of the industry. The small increase in the Employment Allowance was the only announcement the Chancellor made that helped the hospitality industry. Over the last two years the hospitality sector has lost over a third of its nightclubs due the pandemic, with many more struggling. The withdrawal of financial reliefs such as the increase of VAT back to 20% will only result in the sector losing more businesses and jobs.

How can we help?

At Hawsons we have a dedicated team of leisure and hospitality accountants at our offices in Sheffield, Doncaster, and Northampton.

As the sector continues to become ever more challenging, with changes in fierce global, nation and regional competition leading to unrelenting pressures to maintain margins, it is more crucial than ever to seek sound and proactive advice.

At Hawsons our dedicated team of specialist hotel, pub and restaurant accountants offer professionals advice and guidance that is tailored to their individual needs and requirements, providing a full range of proactive services.

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