One initiative that the Chancellor announced in the autumn budget was the introduction of a reduced rate for barrel products in large containers.
There are few sectors that are so important to the Scottish economy – and that have suffered so much during the Covid-19 pandemic – like tourism and hospitality.
As an industry, it is unique because it is an important employer not only in our cities, but also in rural areas.
However, as it seems to be getting back on track, it is being seriously hurt by the staff shortage across the UK.
AAB’s Alistair Duncan: “The permanent increase in the reduced VAT rate could have been an easy way to support Britain’s ailing hospitality and tourism sectors”
Given its vital position in the economy, it is an industry that deserves government support.
Whether for environmental or lifestyle reasons, indirect taxes are often viewed as a means of influencing behavior – this can be a penalty tax to stop unhealthy habits or targeted relief to support certain sectors.
This latter goal was clearly demonstrated by Chancellor Rishi Sunak last year when he announced the temporary lowering of the VAT rate, a move that should give the hospitality industry a boost.
This measure, which was initially reduced to 5 percent from July 15, 2020 to January 12, 2021, proved to be of limited effect as many companies were physically forced to close their offices and they were not in the due to ongoing coronavirus restrictions Were able to get from the lower rate.
As a result, the reduced rate was subsequently extended to March 31, 2022, with the last six months applying a higher reduced rate of 12.5 percent.
Unfortunately, after the budget in October, the government does not seem to be in the mood for any further expansion of these reliefs.
This is disappointing for the sector as the UK VAT rates on restaurant and catering services, hotel stays and entry to amusement parks and sporting events are on average 25 to 50 percent higher than elsewhere in Europe.
The permanent increase in the reduced VAT rate could have been a simple indirect tax measure to help the ailing hospitality and tourism sectors in the UK.
One initiative that the Chancellor announced in the autumn budget was the introduction of a reduced rate for barrel products in large containers. This measure to support the sale of beverages is aimed at draft beer and cider with an alcohol content from volume (ABV) of less than 8.5 percent, sold in containers with a capacity of at least 40 liters.
While any move aimed at helping the trade and luring customers into pubs and restaurants is welcome, as currently envisaged, this new product facilitation will favor the big beverage brands at the expense of smaller craft beer producers and microbreweries.
These smaller manufacturers typically supply pubs in smaller containers, usually 30 liter kegs, which are not eligible for the discount.
The product relief draft is the government’s preferred option to improve consumer habits based on where the retail is located.
Another option proposed following the request for evidence last year was a duty exemption physically linked to the production site.
With so many great visitor experiences at Scottish distilleries and breweries, such a “basement door” program of on-site sales could have encouraged continued investment, increased footfall, increased local tourism and increased the local economy.
Unfortunately, this option was rejected by the government, believing that such relief by favoring producers from locations suitable for tourism would be unfair.
This is a somewhat counter-intuitive reason to decline hospitality! Above all, however, it is a missed opportunity to specifically relieve the hospitality industry.
The UK vacation trend – also known as ‘staycations’ – gave the tourism sector a boost in 2021, although it is unclear whether the lifting of the Red List quarantine requirements for outbound travel will extend that surge into 2022.
While this may not be the main reason for the move, the introduction of an increased passenger tax on ‘ultra long haul flights’ coupled with the new lower tax rate on flights between UK airports from April 2023 could encourage more domestic flights on holidays.
At AAB, our food, drink and hospitality team is committed to supporting the hospitality and tourism sector.
This includes helping companies understand the impact of changes in indirect taxation measures on their business.