VAT cut saves two in five hospitality and leisure businesses

Around two in five hospitality and leisure businesses say they’ve been “kept afloat” by the industry VAT cut, a study has revealed.

The research, published by Barclays Corporate Banking, comes after the rate of VAT applied on “most tourism and hospitality-related activities” was cut from 20 to five per cent in a bid to support the industries most affected by Covid-19.

This includes certain supplies of hospitality, hotel and holiday accommodation and products, including food and non-alcoholic beverages sold for on-premises consumption and hot takeaway food and non-alcoholic beverages.

The five per cent reduced rate also applies to admissions to attractions that are not eligible for the cultural VAT exemption, such as theatres, circuses, fairs, amusements parks, concerts, museums, zoos, cinemas and exhibitions.

According to the report, 39 per cent – or around two-fifths – of struggling businesses say the VAT cut has kept their operation afloat. This rises to 55 per cent when only including cafes.

A further four in 10 businesses described the VAT reduction as a “lifeline” for the sector.

The report comes as four in 10 (41 per cent) hospitality and leisure businesses predict that their earnings will fall by 41 per cent compared to the previous year.

Commenting on the study, Mike Saul, Head of Hospitality and Leisure, said: “The hospitality sector has been one of the hardest hit and the road ahead is tough.

“The government schemes, particularly the eat out to help out scheme, have given the industry a massive and much needed short-term boost. Whilst many bosses in the industry have essentially written off this year it is pleasing to see they are feeling more confident in the run-up to winter and into next year.”

The temporary reduced rate of VAT will revert to the normal rate on 12 January 2021.

For VAT advice specific to your sector, please get in touch with our expert team today.

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