This savings from this reduction are typically retained by the business and the price charged to the customer unchanged. As such, it is targeted financial support for these businesses allowing them to retain monies that would have otherwise been paid in tax.
The extent of the application of the reduced rate has caused some confusion and clarification of the scope has been provided by HMRC in recent weeks. The reduced rate applies to accommodation in hotels and similar establishments, food and non-alcoholic beverages for on premises consumption and admission to cultural events (for example theatres, concerts, exhibitions and similar events).
As we enter a period of new restrictions, the hospitality and tourism sectors will suffer from reduced opening hours, reduced capacity and most likely reduced income. This is additional financial support for the sectors through the VAT system and the extension to this temporary reduction is welcome. However, the measure is limited and specifically applied.
Unfortunately other parts of the leisure sector have received no benefit and been ignored. For example, gyms have suffered the same problems as other leisure businesses, but they have been left out of the VAT cut. There has been much talk about the risk of a wave of insolvencies among restaurants and bars but leaving gyms out of the VAT cut means that sector should now be on the watch list too.