Hospitality and tourism VAT rate increases to 12.5%

VAT for pubs, restaurants, holiday accommodation and entry to certain attractions increased from 5% to 12.5% as of 1/10/21, following the end of a tax break.

A temporary cut first introduced on 8 July 2020 saw the standard rate of VAT for struggling businesses in the hospitality and tourism sectors fall from 20% to 5%.

That short-term relief was in place until 30 September 2021, at which point the rate for businesses in these sectors increased to 12.5% until 31 March 2022.

Under the Treasury’s current plans, VAT on hospitality and tourism sector purchases will return to its pre-pandemic level of 20% on 1 April next year.

A coalition of the UK’s biggest hospitality and tourism bodies fear returning the VAT rate to 20% risks “derailing the recovery while businesses are still recovering”.

In a joint letter, they said:

“Businesses are at a perilous stage of their recovery after what’s been a devastating 18 months. Costs are increasing and there are numerous operational challenges for them to deal with, specifically around labour and product supply.

“A reduction in VAT has helped many of our businesses survive to this point and was most welcome. However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses.”

The coalition wants the 12.5% rate to be in place permanently.

For further information on VAT, please contact Alan Rolfe on 023 8046 1235.