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A VAT Cut Kept Many Restaurants Afloat. As It Goes Back Up, They’re Worried.

The increase from 5 percent to 12.5 percent is currently planned to precede a reversion to the full 20 percent rate, but hospitality businesses hope this can be stopped

A close-up photo of a U.K. receipt, focussed on the line mentioning VAT, listed at 20 percent.
VAT was 20 percent before the COVID-19 pandemic; soon it will go up from five percent to 12.5 percent.
Getty Images

A rise in value added tax (VAT) has joined the end of furlough, as changes intended to signal the recovery of the economy from COVID-19 in fact put further pressure on workers and businesses alike. The U.K. VAT rate has risen from five percent to 12.5 percent, and will — under current plans from Chancellor Rishi Sunak — rise again to its pre-pandemic rate of 20 percent come April 2022.

VAT isn’t something most diners think about a lot, even though it appears on nearly every bill, and numerous restaurants have testified that the cut was essential to their making it through 2020 without having to close entirely or make drastic redundancies. Across three London restaurants — Joké Bakare’s Chishuru, in Brixton Village; Shuko Oda and John Devitt’s Koya, which at that time had two restaurants; and large group JKS, behind Trishna, Gymkhana, Bao, Lyle’s, and others — the cut saved them at minimum £37,000, £300,000, and £3.7 million respectively.

At that time, the cut on VAT was due to be stopped on 31 March 2021, and its six-month extension has bought restaurants both money and time. But now its increase comes at the same time as the end of the furlough scheme, which while less a pressing need for restaurants than it was six, or even three months ago, is nevertheless a new cost for those who might still have staff to come back. Having that cost arrive at the same time as an uptick in VAT is at best sub-optimal.

Accordingly, a number of U.K. trade bodies representing restaurants, pubs, cafes, bars, and hotels are now lobbying against any further increase. UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions are aiming to keep the rate at 12.5 percent in the future; for now, diners can likely expect prices to rise, with the largest, most financially powerful restaurant chains likely to be the only ones who can absorb it.

More soon.