How this VAT rate reduction will affect the Hospitality and Tourism Sector 

 By Ivan Reyes

A great confidence boost yesterday, once the chancellor announced a temporary cut in the VAT rate from the standard 20% to the reduced rate of 5% for certain supplies in the hospitality and tourism sector, everyone loves a deal and it is hoped that a 15% reduction in your food bill will help. The temporary VAT cut for food and ‘non-alcoholic drinks’ will apply from yesterday (15th of July 2020)  until the 12th of January, next year. This cut is with the clear idea of supporting businesses and jobs in the hospitality sector. This new government measure is seeking to support businesses and protect 2.4 million jobs within the sector, following the lifting of the Covid-19 lockdown. 

However, there is a doubt regarding the type of ‘certain’ suppliers for the hospitality and tourism sector that are benefiting from this cut. According to the official government site, this reduction of the VAT rate will apply mainly to restaurants, pubs, bars, cafés and ‘similar’ premises across the UK and textually “certain supplies relating to hospitality, hotel and holiday accommodation and admission to certain attractions.” This temporary measure will definitely create a significant benefit for much of the hospitality and tourism sector, although it is important to note the temporary reduced rate does not apply to alcoholic drinks and will therefore not significantly help venues with a reduced or no food service. Is Accommodation Included In This 6 Months VAT Cut? Yes, the supply management chain for hotel accommodation, holiday accommodation, camping parks, pitches for caravans and tents, as well as their suppliers, will also benefit from the reduced 5% rate of VAT for 6 coming months.

Are Admissions and Attractions Included?

Those venues that are not eligible for the ‘Cultural VAT exemption’ will be also benefited from this VAT cut for their admission fees for:

• Exhibitions
• Amusement parks
• Concerts
• Cinemas
• Museums
• theatres
• Circuses
• Fairs
• Other similar cultural facilities and events.

If the event or entry to these above mentioned facilities includes goods as ‘incidental to the ‘Admission Fee’, these goods, such as food and drinks would be eligible for the temporary 5% VAT rate. For example, a visit tour, welcome reception, buffet, books or freebies given with the entry or admission fee.  

The VAT Cut, As Seen From The Industry’s Perspective 

The well-known IHG Group, which manages hotels such as Holiday Inn and Crowne Plaza states that this would be passing on the cut to corporate bookings, but as a franchised business it could not confirm that all of its outlets would reduce prices for consumers.

Keith Barr, Chief Executive Officer, IHG, said: “At this unprecedented time, our top priority remains the health and wellbeing of our guests, colleagues and partners, and ensuring that in light of such a significant impact on the global economy and, in particular, on the travel industry, we take the right steps to protect the long-term health of our business. Demand for hotels is currently at the lowest levels we’ve ever seen. IHG has a robust business model and the measures we are announcing today to reduce costs and preserve cash give us the capacity to manage the business through this unique environment and to support our owners during this incredibly difficult time. These were not easy choices and we are mindful of the impact these decisions will have on our colleagues and shareholders. However, we believe that these are essential to ensuring that we come out of this as strong as we possibly can and ready to capitalise on what remains an industry with excellent long-term growth potential."

Michael Begley, Managing Director of venuedirectory.com says “This is great news for many of the venues, hotels and attractions that we work with and will be a welcome boost, but is no help to the Meetings & Events industry which we serve. Our industry is in a lockdown state still and therefore cannot pass on these benefits. Until we get guidance from the UK Government that gives corporate meeting planners the green light to push ahead with meetings and events all we can do is tread water and plan for the re-opening. We are ready, we are more ready than many other business streams, and as soon as our Lockdown is lifted we can pass on these VAT benefits. 

The Government’s Point of View 

From the Treasury’s perspective, Chancellor Rishi Sunak said: “We want businesses to pass on the benefit to customers if they can, and almost four-fifths of businesses said they did so in 2008. But, we recognise that many of these businesses have been closed and without income for months, and decisions on prices are ultimately for businesses rather than the government.”