Relief for the Hospitality Industry as VAT Rates are Slashed

This article is a guest feature by Brendin Cohen, Strategic Partner Manager EMEA at VAT IT. 
 

Speaking at his summer statement last week, Chancellor Rishi Sunak announced a new reduced vat rate would be in effect from 15 July 2020 until 12 January 2021 for the hospitality sector. VAT Rates in the UK were slashed on by a whopping 15%, from 20% to 5% for qualifying goods and services. 
 

The new VAT rate will be applied to both eat-in and takeout food, accommodation and attractions and will hopefully assist in securing jobs in the hospitality sector. 
 

This is over and above Sunak’s announcement of the “Eat out to help out” discount scheme which encourages the public to eat out at restaurants and the scheme will provide a 50% reduction up to the value of £10 per head for sit down meals in cafe, restaurants and pubs. This discount will be available Monday to Wednesday throughout August. 
 

The discount can also be applied to business meals, so those looking to meet with customers or employees in a restaurant or café can also benefit from the 50% discount and thereby pass on the saving to the business when reclaiming on expenses. Of course this will not be norm for many employees who opt to continue working from home right now – but it’s nice to know business diners are not excluded from the offer for those choosing to meet up.
 

The UK also follows many other EU countries to have already cut VAT rates on many goods and services most notably around hospitality, entertainment and medical equipment. The news comes as a deeply-felt relief for many in the hospitality industry – one of the worst hit by the pandemic.  
 

It was reported in bighospitality.co.uk, that CEO of the Hospitality Professionals Association (HOSPA), Jane Pendlebury said: “The reduction in VAT is absolutely massive news for the hospitality industry.” 
 

“It’s not often that I can say I’ve felt a rush of emotion following a House of Commons announcement but today, I certainly have – and that’s something that just serves to underline how much of a huge relief the latest measures are.”
 

This VAT rate drop in the hospitality sector is a fantastic way to stimulate the economy and allow businesses on both sides of the transaction get back to normal operation.
 

Whilst the VAT being charged will only be a quarter of what it was previously, there is still a huge potential for companies to seek to reclaim this VAT. This is in addition to the VAT charged on other goods and services which remains at 20%, and also historically charged VAT of which there can be thousands left to recoup for businesses at a time when cash flow is most critical to many businesses.