The UK hospitality sector VAT rate will increase on 1 October 2021. Currently, the VAT rate on food, accommodation and admission to certain events is set at a reduced rate of 5%. However, while the rate will increase at the end of September, it will not yet return to the full 20% rate.
Why did the UK cut the hospitality VAT rate?
Covid-related lockdown, and other social distancing measures, hit the hospitality sector especially hard. In response, the UK government slashed the VAT rate in an effort to boost demand.
Government always initiated the VAT cuts as temporary measures, but extended the cuts more than once. Despite some resistance to extending the cuts beyond March 2021, the UK government ultimately extended the 5% rate until 30 September 2021.
Special intermediate VAT rate
In recognition of the importance of the hospitality sector to the UK economy, Chancellor Rishi Sunak previously announced a special intermediate VAT rate of 12.5%, effective from 1 October 2021. Rather than returning immediately to the ordinary VAT rate, VAT will be set at the intermediate rate for six months.
Sunak says the measures will assist “150 000 businesses that employ over 2.4 million people”. Note also that Sunak has the power to extend the reduced rate at his discretion.
Some hospitality industry insiders want a permanently reduced VAT rate to apply to the sector. Lobby groups say reduced VAT will help the industry overcome difficult economic conditions and manage accumulated debt.
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