I know this issue is of importance to a number of individuals and businesses right across the UK.
The temporary reduction in VAT to 5 per cent instead of 20 per cent for hospitality and tourism businesses, which was previously been extended until 31 March 2021 and subsequently place until 30 September 2021 is changing to 12.5 per cent and will remain so until 31 March 2022. The scope of the relief will remain unchanged over this period. I am not aware of any plans to make this reduction permanent but I will continue to engage with ministerial colleagues on this topic.
I welcomed the Chancellor’s announcement that businesses will be able to spread their deferred VAT repayments over 11 smaller, interest-free repayments. This will benefit almost half a million businesses who have deferred £30 billion worth of VAT this year.
I recognise that in the past some EU member states had implemented a lower rate of VAT on tourism and hospitality to the UK. However, comparisons with these countries tended not to take into account the significant VAT reliefs the UK provided for cultural attractions and public transport, or other tourist taxes that some member states choose to levy. Additionally, the UK’s VAT registration threshold is high when compared to EU member states, so many tourist attractions did not have to charge any VAT to their customers.
The business rates system is clearly an area of UK tax policy which requires re-examination to ensure that it minimises the burden on businesses as far as possible. I welcome that, alongside a 2023 revaluation to accurately reflect the impact of Covid-19, the Government has initiated a fundamental review into the business rates system as a whole.
I am not aware of any plans to permanently reduce the rate of VAT on all food and drink. I have spoken to colleagues at the Treasury who have made it clear that the temporary reduction to VAT was intended as a measure to support the industry during the coronavirus pandemic. To extend this reduction indefinitely would limit funding long-term for the vital public services which have served us so well in this time of national crisis.