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VAT reduction for tourism businesses

The VAT reduction for tourism, leisure and hospitality businesses has been extended until 30 September then will rise to 12.5%.

As I write this, hairdressers have reopened, pubs can now operate outside, and it seems we are on target for the roadmap out of lockdown outlined by the Government.

However, overseas travel is going to be problematic for 2021, therefore we may see a massive boost to the UK tourism and leisure industry with the staycation effect. However, I daresay that it will take some time to recoup losses incurred over the last year or so.

On the positive side, in his March Budget statement, the Chancellor confirmed that the reduction in VAT for tourism, leisure and hospitality businesses from 20% to 5% has been extended by six months until 30 September. It will then rise to 12.5% for the following six months before returning to the standard rate of 20% in April 2022.

The VAT reduction is for many aspects of accommodation, food, drink (excluding alcohol) and tourist attractions. The reduction was originally due to end on 12 January 2021 before being extended to 31 March 2021 in the Chancellor’s Winter Economic Statement, when he said the reduced rate would help 150,000 businesses survive the winter months.

Ahead of the Budget, Boris Johnson referred to it as a “Budget for recovery.” There’s no doubt that businesses within the tourism, leisure and hospitality sector have been significantly impacted by the COVID-19 pandemic. Survival is their first priority and they certainly need help to recover from the effects of the past 12 months.

The VAT reduction first came into force on 15 July 2020, and just 16 weeks later, on 3 November, many businesses in the industry were again forced to temporarily close their doors. Many have not traded since and will not do so ahead of 31 March 2021, when the VAT rate was due to increase back to 20%. Therefore, of the 37 weeks that the reduction was due to be in place, some businesses were only able trade for 43% of the time, restricting their ability to benefit from the reduced rate.

With this in mind, the extension is a welcome boost to the affected businesses hoping for a positive 2021 summer season and beyond. However, it’s disappointing that the VAT rate will increase to 12.5% from 1 October 2021 before returning to 20% in April 2022. Many of our neighbouring countries have permanently lower VAT rates than the UK, with France, Italy and Spain all having a 10% VAT rate applicable to accommodation. This makes it potentially cheaper for consumers to head abroad, once restrictions are lifted, rather than opt for a British staycation which would help the UK economy recover.

Further measures

Further measures were announced in the Budget which will affect the tourism, leisure and hospitality sector. These include:

  • Further grants of up to £18,000 for businesses within the sector
  • A freezing of the duty payable on alcohol sales
  • Relaxation of corporation tax loss rules
  • Enhanced capital allowances
  • An extension to the 100% business rates holiday through to June 2021, with reduced relief available for the rest of 2021

The recovery of the tourism, leisure and hospitality sector will rely heavily on the support of the government packages and the confidence of the public, which will hopefully increase following the vaccine roll-out.

Self-Employment Income Support Scheme (SEISS)

The online service to claim the fourth grant will be available from late April 2021. This will cover the period 1 February 2021 to 30 April 2021.

If you’re eligible, based on your tax returns, HMRC will contact you in mid-April to give you the date from which you can make your claim. It will be given to you either by email, letter or within the online service.

You’ll need to confirm you meet other eligibility criteria when you make your claim.

You must make your claim on or before 1 June 2021.

This link gives all the information:
https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

There will be a fifth grant covering May 2021 to September 2021. Guidance on how to claim the fifth grant will be provided in due course.

If you have any queries, you can contact me on 01473 833411 or peter.glading@larking-gowen.co.uk

Peter is the Guild’s accountant.This article is designed for the information of readers. Whilst every effort is made to ensure accuracy, information contained in this article may not be comprehensive and recipients should not act upon it without seeking professional advice. “Larking Gowen” is the trading name of Larking Gowen LLP, which is a limited liability partnership registered in England and Wales (LLP number OC419486). Where we use the word partner it refers to a member of Larking Gowen LLP. © Larking Gowen.