How will the hospitality industry cope with the rising cost of VAT?

How will the hospitality industry cope with the rising cost of VAT?

How will the hospitality industry cope with the rising cost of VAT?

After Covid-19 took the world by storm, the UK government reduced the rate of VAT to 12.5% for the hospitality industry. This welcome VAT reduction took place in July 2020 and helped pubs, restaurants and cafes recover from the crippling effects of a national lockdown. But as of 1st April, the government has increased the rate of VAT back to 20%, which was the normal standard VAT rate for the hospitality and tourism sector before the world entered a global pandemic. As the hospitality industry has been hit with a variety of challenges, this isn’t exactly a welcome change. Will the hospitality industry be able to cope with the VAT increase? What will this mean for customers? Keep reading on to find out more.

Bills keep increasing

While it’s normal for every industry to feel the effects of rising costs each year, hospitality has been especially hard done by in recent years. This industry was hit particularly hard by lockdown restrictions, with pubs and restaurants scrambling to create usable outdoor spaces to accommodate new legislation. The temporary reduction in VAT in July 2020 was a welcomed gesture from the government, as it allowed restaurants to get back on their feet.

The increase in VAT comes in the wake of increases in energy bills, food costs and national insurance payments. Given the timing, much of the hospitality industry is struggling to cope with these rising costs that are taking place all at once.

What will this mean for customers?

While the government made it clear that the reduction of VAT to 12.5% was a temporary move, some restaurants and bars are responding to the increase of VAT to 20% by having to raise the cost of food and drinks for their customers. Clive Watson, chairman of the City Pub Group chain, has noted that they’ve had to increase his pub chain’s drink prices by 4% and will soon increase food prices by at least 7.5%. This means that the rise in VAT the increased costs of higher wages through pub recruitment challenges will not only be felt by the hospitality industry but customers alike.

The future of hospitality

The reduction of VAT during Covid-19 was a lifeline to many businesses operating in the hospitality sector. The increase of VAT back to 20% in the wake of other multiple price increases will definitely be felt by the industry as a whole and will have a knock-on effect on their customers. Only time will tell how this will pan out in the future.

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