Politics

Chancellor fails to extend 12.5% rate of VAT for hospitality


Hospitality industry on a knife edge as Chancellor refuses to extend 12.5% rate of VAT amid ‘tidal wave’ of rising costs

  • The Chancellor has chosen not to extend the 12.5% rate cut for pubs and restaurants 
  • Elsewhere Sunak increased the employment allowance by £1,000  
  • The hospitality industry has warned it is facing thousands of job losses without further support 

The Chancellor today laid out plans to deflect the worst of the cost of living crisis but small businesses feel his plans do not go far enough as they get back on their feet after the pandemic.

Rishi Sunak delivered his Spring Statement in which he laid out plans to cut fuel duty by 5p as well as committing to an income tax cut by 2024.

But there was a distinct lack of further support for small businesses and industry leaders have warned it could lead to thousands of job losses.

Despite lobbying attempts hospitality firms will go back to paying 20% VAT from next month

Despite lobbying attempts hospitality firms will go back to paying 20% VAT from next month 

‘We wanted a confidence boost for small business today but what we got was confirmation of existing schemes and reliefs. 

‘The employment allowance will be welcome but today’s Statement was more about politics than enterprise,’ said Emma Jones CBE, founder of Enterprise Nation. 

‘There may be a tax plan but that’s not enough to energise the small business base on which we so much rely to power the economy and local communities.’ 

Jenny Blyth, owner of small business Storm in a Teacup said: ‘This Conservative Government is delivering for businesses, the Chancellor says, unless you’re a micro business in which case you don’t count. Some of the initiatives announced today all sound great in principle but sole traders are consistently overlooked. 

‘Where do we fit in? This Budget was just more smoke and mirrors. Watch the coffers rise up as the help we need depletes.’

The hospitality industry is less than impressed with today’s statement after the Chancellor neglected to extend the 12.5 per cent of VAT beyond April.

Emma McClarkin, chief executive of the British Beer and Pub Association said: ‘We are very disappointed that the Chancellor decided not to extend the 12.5 per cent rate of VAT for hospitality.

‘The sector remains on a knife-edge as it emerges from the pandemic and the impact of the recent energy crisis and invasion of Ukraine has ensured the turbulent times will continue for pubs and brewers just as we had hoped to build the road to recovery. The coming months could be some of the hardest yet for our pubs and brewers.’

A recent study by Oxford Economics found that despite government support during the pandemic, over 800 pubs closed their doors for good over the period.

Kate Nicholls, chief executive of trade body UKHospitality said: ‘This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid, and facing a tidal wave of rising costs.

‘Locking in VAT at 12.5 per cent would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-Covid prosperity. 

‘As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost of living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.’

McClarkin added: ‘The failure to act today represents a huge missed opportunity to help brewers and pubs in the face of sharp increases to the cost of living and doing business.’

The Chancellor confirmed that from next month the 50 per cent year-long discount on business rates up to £110,000 will be available for the retail, hospitality and leisure sectors.

During the pandemic, hospitality firms received a 100 per cent business rates discount between 2020 and 2021 and the first quarter of 2021/2022. Eligible businesses then received 66 per cent relief for the remaining nine months.

In another move designed to help small businesses, the employment allowance, which helps them lower their national insurance bills, will be lifted from £4,000 to £5,000.

The Federation of Small Businesses, which proposed the uprating of the allowance, welcomed the move saying it would ‘provide crucial breathing space for our embattled small employers.’

‘Achieving the new culture of enterprise vision he rightly aspires to, alongside levelling up aspirations, will mean putting community small firms and sole traders front and centre of reforms.

‘That means taking more of them out of the business rates system, protecting SME R&D investment incentives and delivering on commitments to end an endemic late payment culture that destroys thousands of firms a year.’

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