The Tourism and Hospitality sectors stand as the worst affected business segments on a global scale due to the COVID-19 Pandemic. As a measure to contain the infection, Governments in most countries closed their borders, and even domestic travel came to a halt due to lockdowns. Also, restaurants and hotels were bound to stay closed. Clearly, this has led to a devastating effect on both the Tourism and Hospitality industry. Experts anticipate staggering losses worth billions of Pounds for the entities involved in the two industry sectors.
In the pre-corona era, the United Kingdom had a prospering tourism and hospitality market. The UK attracts millions of tourists every year. They also contribute immensely to the Food and Hospitality business. As per last year, the Hospitality industry formed 4 Percent of the UK’s total GDP. While the Tourism sector also contributed more than 4.1 Percent to the GDP. The UK’s economy can be termed as a consumption driven economy. However, the situation has now flipped. Many hotels and tour agencies have gone bankrupt. Millions of workers associated with these industries have lost their livelihoods. A lot is at stake in these troubling times, as major contributors of the UK economy are under immense strain.
The UK Government has duly taken note of the adverse times for the two sectors. The Chancellor of UK, Mr. Rishi Sunak, has recently introduced a Mini-COVID-19 Budget for the benefit of the British citizens. An official announcement of the Mini Budget took place on 8 July 2020. One of the key highlights of the Budget speech was the temporary VAT cuts announced for the entities involved in the industries related to Restaurant, Hotels, and Holiday accommodation. The VAT Cut’s primary goal is to benefit around 150,000 Business entities and help save about 2.4 Million Jobs across the United Kingdom. The temporary VAT reduction will act as a cushion for the several business entities to revive their operations.
The discount in the rate of Value Added Tax for Hospitality, Accommodation, and certain other Attractions will begin from 15 July 2020. This decrease will remain in effect until 12 January 2021. The standard rate of 20 Percent for these business sectors will go down to 5 Percent during the stated period.
Let us dig deeper to get a clearer picture of the conditions attached to this VAT rate reduction and the industry-wise effect of the relief measure.
Hotel and Accommodation Industry
Business entities that provide holiday accommodation, camping facilities, and caravans can benefit from this rate decrease. The temporary reduction is available if they:
- Charge for provision of holiday accommodation
- Offer Sleeping Accommodation in a hotel or any similar establishment
- Provide Camping facilities and Tent Pitches
- Supply Caravan Pitches and related amenities
This VAT cut will help them to lower their tariffs and service charges to attract more customers.
Restaurants and Eateries
Business entities that supply food and non-alcoholic beverages for consumption to customers on locations like Cafés, Restaurants, and Pubs will be charged only 5 Percent VAT from 15 July 2020. This cut is also applicable for takeaway food. Reduced VAT shall apply to hot takeaway food meals along with non-alcoholic drinks.
Bear in mind that this rate cut is not available for alcoholic drinks served in pubs, bars, or restaurants. The VAT Rate for such drinks remains unchanged. Pubs which are usually dependent on the sale of alcoholic beverages will not get much benefit.
Public Attractions and Cinemas
Places like Theatres, Fairs, Amusement Parks, Museums, Zoos, Cinemas, Exhibition Centres, Concerts, Studio Tours, Planetariums, and similar places for cultural events and attractions, will also receive the benefit of the VAT Cut.
The VAT payable on the admission fees charged for entry to the places of attractions specified above has lowered from the standard rate. The reduction will remain in effect for the period between 15 July 2020 and 12 January 2021. The principal supply amount eligible for the benefit of the cut will include incidental supplies. For example, if the main supply is admission fees to the place of attraction and also covers ancillary supplies like free snacks are considered incidental supplies, the whole supply amount will qualify for the temporary VAT Cut.
The benefit of this rate cut is not available for entry into sporting events. This exclusion is because the places that enjoy exemptions on the admission fees charged to visitors will remain unqualified for any deduction in the VAT Rates. You will find sporting events related to sports like Football, Cricket, Badminton, and Athletics in the exemption list.
Hope that Businesses find a great support with the VAT Cut to drive their ventures out of the Corona Crisis!
Businesses will surely get a boost with this temporary reduction measure. Many expect that as a result of the six months VAT relief, business entities involved in the Restaurant and Hospitality industries will save millions of pounds. It will help the various businesses to attract more customers. The VAT discounts will empower entities with the ability to lower their prices and make necessary investments for recovery. Restaurants and Hotels will have the ability to retain more employees. They can expect a surge in their overall occupancy rates. Places of attractions can lower their fares for admission tickets and make provision for ensuring social distancing at their premises. There are many small business houses, involved in the Hospitality or Tourism industry, that avail the Flat Rate Scheme to simplify their VAT Calculations. They should also look into the effect of the temporary VAT cut on their VAT Liability.
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