VAT cut extension vital for hospitality sector

Retaining reduced rate will help keep businesses afloat and put them in stronger position to lead economic recovery, writes Wylie & Bisset tax partner Catherine McManus

THE announcement by Scottish finance minister Kate Forbes that the current non-domestic rates ‘holiday’ for hospitality and tourism businesses is to be extended until April 2022 gives some much-needed good news to a hospitality sector struggling to survive the devastating effects of this protracted lockdown.

But this extension will not in itself be sufficient to allay the dire financial predicament faced by a multitude of licensees through no fault of their own.

What is urgently needed to dispel the gloomy prospect of heavily restricted Easter and summer seasons ahead is for the UK Government to match this rates ‘holiday’ extension with an extension of the VAT cut to 5% for hospitality for a further year, giving businesses a better chance of survival. As trade body UKHospitality points out, this would give many employers vital support to keep jobs open and put them in a much stronger position to help lead the way towards economic recovery.

It is to be hoped, then, that when chancellor Rishi Sunak delivers his Budget on Wednesday 3rd March 2021, predictions of an extension of the VAT cut on tourism and hospitality come to fruition. Slashing VAT and providing a business rates holiday have played a crucial role in helping keep many hospitality businesses afloat by giving employers some much-needed breathing space to survive the crisis.

But there is no escaping the fact that the hospitality sector has been devastated by this pandemic. Recent data from the Office for National Statistics reiterates the economic importance of the UK’s hospitality sector, and the urgent need for it to be supported and at the heart of government’s plans for reopening. The stats show the UK economy shrank by 10% last year with the output of the accommodation and food services sector now 52% lower than last year.

Hospitality operators are crying out for firm dates to plan their reopening strategies, so they can bring back staff, negotiate their rent with landlords and re-engage with suppliers.

The UK Government matching the Scottish Government’s extension of its rates ‘holiday’ with an extension of the VAT cut to 5% for hospitality for a further year would give many licensees an enhanced chance of survival by stimulating consumer demand and helping reduce costs.

Meanwhile, we would urge licensees to seek professional turnaround and restructuring advice as soon as practicably possible to prepare for the conclusion of government assistance by reviewing the various options available to them rather than wait until it is too late.

The helpline we launched last summer to deliver free business advice to help steer hospitality businesses through this unprecedented period remains open. The number is 0141 566 7096.

– Catherine McManus is tax partner at Wylie & Bisset