HMRC’s big update goes largely unnoticed as pressure mounts on PM

HMRC officials have released important but largely unnoticed news as Prime Minister Andy Burnham faces growing pressure today to take action on VAT following calls from Wetherspoon, Pizza Express and high-profile British chefs. More than 800 hospitality businesses have written to the Prime Minister today, Monday 14 September, calling on him to set out his plans to introduce a reduced VAT rate.

The VAT Challenge campaign calls for the VAT rate on hospitality to be reduced from 20% to 10%. Businesses backing the campaign have signed a letter calling on Andy Burnham to make good on his public promise in February to cut the VAT rate for the hospitality sector.

Pubs, bars and breweries among those that have signed on include Fuller’s, Greene King, Robinsons Brewery and Wetherspoon, as well as resorts such as Center Parcs, Haven and Marriott International. High-profile figures who have joined the letter demanding a VAT cut include celebrity chefs Heston Blumenthal and Tom Kerridge, as well as restaurants Bill’s, Franco Manca, Pizza Express and Wagamama.

On Thursday 10 September the Treasury published in Parliament an update to HMRC that has been widely ignored. It provides a clear picture of the impact that a significant reduction in hospitality VAT could have on UK public finances. As UK bond market yields rise amid concerns about the country’s debt levels, the Treasury’s response shows any such decline could have a significant impact on the government’s annual tax receipts, reports the Liverpool Echo.

In response to a question from Labor MP Neil Coyle, James Murray, Financial Secretary to the Treasury and Treasurer General, said in a statement to HMRC: “The Government recognizes the significant contribution made by the hospitality industry to economic growth and social life in the UK. The potential impacts of changes in this sector are carefully considered as part of policy development.

“Where changes are made, relevant notes and impact assessments are published at funding events and other times as appropriate, in accordance with normal government practice. The Treasury also engages regularly with the hospitality sector to understand the challenges they face.

“VAT is a broad-based consumption tax and the standard rate of 20 percent applies to most goods and services. VAT is the third largest tax in the UK and is forecast to generate £180 billion in 2025-26. Exceptions to the standard rate have always been limited and balanced against affordability considerations.

“HMRC estimates that the cost of changing the 20 per cent standard rate of VAT on all accommodation, food and drink services to a reduced rate of 5 per cent would be around £17 billion in 2026-27, rising to £19.5 billion in 2030-31.”

By comparison, the current defense budget is £62 billion. In July, the new Prime Minister announced a new business rates cut that will affect almost 32,000 pubs, clubs and live music venues, saving the typical pub around £1,100 in the next financial year, according to the government.

However, industry representatives argue that a VAT reduction is also urgently needed. During the quarantine, the rate was reduced to 5 percent and then gradually restored.

Now celebrity chefs and major British firms are calling for a reduction of up to 10 percent. Tom Kerridge said: “20% VAT is holding back the hospitality business,” adding that the sector is “different to many other businesses because most of what we spend money on is our teams.”

UKHospitality said that “the vast majority of signatories are small and medium-sized enterprises that operate venues at the heart of their communities.” TV chef Mr Kerridge said: “It is clear the Prime Minister understands the importance of hospitality and I was very encouraged to hear him advocate for a lower VAT rate for our sector earlier this year.

“The reality is that 20% VAT is holding back the hotel business. The hotel business is different from many other businesses because most of what we spend money on is our teams.

“You can get VAT back on a product, but you can’t get VAT back on a person. This makes the 20% rate particularly harsh for a sector where labor is one of our biggest costs. And all this comes at a time when businesses are already facing rising wages, energy bills, food costs and business rates.

“We see the consequences: businesses are closing their doors every week. That’s why hospitality businesses across the country have united with one simple request to the Prime Minister: keep your promise and cut hotel VAT to 10%, like our European neighbors do. We don’t need more promises. We need action.”