Susanna Reid grills Anne Marie Trevelyan over VAT rise
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In the Government’s Summer Economic Update in July 2020, a number of VAT measures were introduced with a purpose to support various business sectors suffering as a result of the COVID-19 pandemic. This included a temporary reduction in VAT rates.
The VAT rate reduction targeted the hospitality, hotel and holiday accommodation sectors, as well as admission to various attractions to encourage customer demand and help fill the economic void caused by lockdowns and coronavirus restrictions.
VAT rates were reduced from 20 percent to five percent in July 2020, and this relief was extended to September 2021.
On October 1, 2021, VAT increased to 12.5 percent, and it has been at that rate ever since.
However, alongside a number of other price increases the UK is due to face this year as the cost of living spirals, a jump back to paying 20 percent VAT in these sectors will be one of them.
When will VAT go back up?
VAT is due to revert back up to 20 percent on April 1, 2022, which is defined as the standard rate.
What will be affected?
The temporarily reduced VAT rate applied to supplies of meals and non-alcoholic drinks eaten-in, hot takeaway foods, and hot takeaway drinks, and qualified in restaurants, pubs, cafes, and similar establishments.
Hotel and guest house stays, self-catering holiday accommodation, caravan stays, and camping rentals and pitch fees were also subject to the temporarily reduced VAT rate.
VAT on admissions to shows, theatre productions, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas and exhibitions (that weren’t usually exempt from VAT), were also reduced to 12.5 percent.
From April 1, VAT of 20 percent will be added back to supplies for these establishments, meaning the price of products will see a rise again.
Despite the fall in VAT, few establishments were able to pass on the benefits to customers over the past year due to the financial impact of the pandemic – which answers for the lack of price drop for customers throughout this time.
Instead, the tax reduction was used by businesses to absorb spiralling costs to keep prices for customers stable.
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Now, with the increased VAT returning, industry chiefs including Wetherspoons founder Tim Martin, have said prices would have to increase significantly for customers as a result of reduced VAT support.
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 percent 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”.
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