Temporary 5 per cent VAT rate rises as business opens up

Businesses that have benefited from a cut in the VAT rate will see the temporary figure of five per cent rate increase at the end of September to 12.5 per cent.

The cut was introduced by the Government to help businesses in the tourism and hospitality sector who were hardest hit by the effects of the pandemic. It was one of many measures taken by the Government to tackle the pandemic including the furlough scheme and a number of business loans and grants.

The measure was first introduced on 8 July 2020 with the five per cent figure applying to certain supplies relating to hospitality, tourist attractions and holiday accommodation including  pitch fees for caravan parks and tents and related facilities, to protect the 2.4 million jobs affected. It is estimated to have cost £4 billion.

It encouraged schemes like the Eat Out to Help Out initiative and those in tourism and hospitality before further lockdowns were introduced in the autumn and again at the beginning of this year.

Specifically supported were food and non-alcoholic beverages sold for on-premises consumption in restaurants, cafes and pubs and hot takeaway food and hot takeaway non-alcoholic beverages.

In addition, it applied to admissions to attractions such as theatres, amusement parks, concerts, museums, zoos, cinemas and exhibitions.

HM Revenue & Customs said when the change was introduced that it expected that it may incur one-off implementation costs in adjusting accounting and software systems, but expected the costs to be negligible.

The emergency measure was due to end on 12 January this year, but was further extended to 31 March and finally in his March Budget, the Chancellor Rishi Sunak extended it to 30 September.

The increase will come after the UK economy has fully opened up after the series of lockdowns, with these areas gradually getting back up to speed.

The rate will then change to 12.5 per cent until 31 March 2022 and the start of the new tax year. This is designed to assist those hit hardest to gradually transition back to the full rate of VAT of 20 per cent which stood before the temporary measure was introduced.