VAT Reduction

VAT Reduction

Blog Writer Picture - Tom Young

VAT and Tax in the Hospitality & Catering Industry is one major talking point. Many argue the figure of 20% is extortionate and puts the Industry at a disadvantage. The sector, made up of Hotels, Restaurants, pubs and bars, the latter two beholding an average yearly turnover of £21 billion whilst it also employs a staggering 500,000 staff in the UK – this works out as 5% of the British workforce and remember if current forecasts are even remotely correct, this percentage is set to rise steeply any moment now! However, this huge figures are almost drowned out by the 50% in turnover most establishments are forking out in taxes and other legislations, many big names within the Industry from all corners of the sector have recently been supporting the idea of reducing VAT within the Industry from 20%, to a 5% figure which will return benefits that will allow the Industry to flourish at amazing levels.

The 15% reduction in VAT will offer many establishments, whether it be Pubs or Restaurants, the opportunity to lower their outgoings, reduce prices and increase profits along with increasing staffing levels and sales, thus increasing the tax the government receives. It’s a win-win right? Well, it is argued that it is unfair that one Industry be shown what may be deemed preferential treatment or special treatment regardless of its legitimacy of argument as well as flaws being pointed out in the debate that supermarkets often find themselves exempt due to not physically adding value to the products they sell.

VAT stands for Value Added Tax, so in circumstances related to supermarkets, they most often buy the products the way they are, so in retrospect, are not entitled to pay VAT on it whereas Restaurants and Pubs are effectively putting individual components together and altering the original product, thus adding value to the product and being expected to pay VAT.

Outlets taking part in this year’s Tax Parity Day, include Wetherspoons, St Austell and high street chains Pizza Hut & Subway, have projected an increase in sales of between 10 and 12 percent and the scheme is fronted by Jacques Borel, an entrepreneur, who has lobbied for VAT reductions in other countries, successful lobbies at that as well! In France he contested for a reduction in VAT from 19.6% to 5%. This sparked 225,000 new jobs created in the first year of its operation and a stark increase in sales.

Also supporting the scheme, Raymond Blanc, has spoken of how Britain is lacking and falling behind as competition due to the taxes and legislations imposed. He said “In my beloved France the rate of VAT is 10% in Hotels and yet here in Great Britain it is 20%. This automatically puts us in Great Britain at a disadvantage as a global player.” Whilst he then spoke of how “The Hospitality industry is the leader in spearheading the reduction in youth unemployment and any action which would create more jobs and put more youngsters into employment would be beneficial to the treasury”. Another big name supporting the scheme is Phillip Newman-Hall, General Manager of Le Manoir added his opinion to the fire after hearing Raymond Blanc’s perspective, “We are supposed to be one European Union but the differing tax regimes which lead to lower prices will always draw tourism away from the UK – not just incoming tourism that will go elsewhere, but also outgoing tourism that will leave the country rather than take a ‘staycation’. The Government should be looking at the long-term issues of employment and parity, not just the short-term issue of tax revenues.

Tax Parity is required to some extent, the exemption for supermarkets is arguably justified due to it coming in line with what VAT stands for but the positives of reducing VAT in the Hospitality & Catering Industry seem to outweigh the negatives by a landslide. Convincing the public and each other however, isn’t the problem though, it’s the Government are the ones we need to convince and that’s a different battle altogether.

Key Facts and Figures:

  • 20% VAT levied on Hospitality & Catering Industry
  • Proposals to reduce percentage to 5%
  • Supermarkets paying no VAT on most products excluding Alcohol
  • Reduction in VAT in France from 19.6% to 5% sparked increase of 225,000 jobs
  • Raymond Blanc & Le Manoir supporting the scheme
  • Others include Wetherspoons, St Austell, Pizza Hut & Subway
  • Britain falling behind in respect of Tourism, Hospitality & Catering Industries compared to other European Nations

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