Back to the future for Value Added Tax?

Chancellor Rishi Sunak may have been channelling his inner Dr Emmett Brown and proclaimed “I finally invented something that works!”

Along with the various coronavirus business support schemes, the temporary 5% reduced VAT rate for the hospitality and tourism sector was regarded almost universally as a success.

It was no surprise therefore when this was extended from 31 March 2021, until 30 September 2021.

What did come as a surprise to many was the introduction of a 12.5% transitional rate that will apply from 1 October 2021 until 31 March 2022, before reverting to the VAT standard rate of 20% from 1 April 2022.

Could this be a sign of things to come; or is it indeed a case of going back to the future? Is it time to stop dwelling on how the VAT rates have been applied in the past and see new future possibilities free from the shackles of what has gone before?

Many of the remaining EU27 member states already had a lower VAT rate to benefit hotels, restaurants, bars and even nightclubs.

The pandemic has brought into clear focus the key role that the UK hospitality and leisure industry plays, not just in job creation and economic development but on the general health and wellbeing of our society as a whole.

There may not be a time machine that will transport us to the future, but surely it is time for VAT rates to shake-off the past and to reflect the new tomorrow.

If you have any queries, please do get in touch with the VAT team or your local PKF Francis Clark advisor.