What does the reduced rate apply to?
The reduced VAT rate applies to certain supplies of -
- hotel and holiday accommodation
- admissions to certain attractions
There are a number of conditions applying to the reduced rate. For the hospitality sector the 5% rate applied to supplies of catering and non-alcoholic drinks, for on or off premises consumption.
The rate also applied to supplies of hotel and similar accommodation, holiday accommodation and caravan pitch fees and similar supplies. Admission fees to certain attractions also benefited. This included theatres, shows, concerts, cinemas and similar cultural events.
The 5% rate was welcome and provided some specific support for the leisure and hospitality sectors. However, the timing of the increase is disappointing as the sectors continue to recover. Tourism has not resumed in any meaningful way which is evident from the availability and pricing of hotel rooms. The staycation boom has ended and there are few signs of the return of overseas visitors.
Theatres and cinemas have only just reopened and they have had not had any meaningful benefit from the 5% rate even though these were arguably among the hardest hit sectors. The increase is compounded by the end of other sector support measures including furlough at the same time. It feels inevitable this will lead to job losses.
More generally, there has been pressure for a permanent reduced rate to benefit the leisure and hospitality sectors. This would help the businesses in these sectors and allow them to compete with EU countries already offering reduced rates to these sectors.
There are other economic and health policy reasons to consider the increased use of reduced VAT rates for these specific sectors. It would be a statement of intent about their importance and value to the cultural and social wellbeing of the UK and as part of the further development of the UK as a premier tourist destination.