VAT rate change to boost UK hospitality sector?

There are rumours that the Chancellor is planning to announce a reduction in the VAT rate and all eyes are on Thursday 9 July when he is expected to make an economic statement. If he does, then his aim will be to encourage people to spend more money and thus kick-start the economy. What might this mean for the travel, tourism and hospitality sectors?

The Chancellor could be planning a reduction in the standard rate of VAT from 20% to (it has been reported) 15% for a limited period of time. The last time a general VAT rate cut was implemented in the UK was for 13 months in 2008-2009 when the standard rate dropped from 17.5% to 15%. Most businesses passed on the reduction to customers at that time (the report commissioned by the government on the cut and its impact can be found here https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/344926/comp-costs-comm.pdf)

Alternatively he might focus a VAT rate cut on a specific sector of the economy - the hospitality sector has been mentioned as has a VAT rate of 5%. If he decided to go down this path, then for a limited period of time, UK hotels, B&B's, pubs, restaurants, tourist attractions and so on, depending how the legislation is drawn up, would be able to charge just 5% VAT instead of 20%. Would it be enough to encourage people to holiday within the UK? Many people don't want to holiday at all either through lack of money or fear of a second wave of Covid-19. However there are I believe, many people who are desperate for a change of scenery - myself included!

One problem with a cut is that it falls on businesses to implement it meaning changes in invoicing templates, accounting systems, websites and pricing are all required and this can take time to put in place. In 2008, businesses got one week's notice of the VAT reduction and they complained then about the lack of time to prepare. Will there be more notice this time?  

You can find more information about what to do if there is a change in the VAT rate here: https://www.macintyrehudson.co.uk/publications/article/preparing-for-a-vat-rate-cut 

Sue Rathmell

VAT Partner

MHA MacIntyre Hudson

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