The case for a 5% VAT rate for hospitality

28 September 2011
The case for a 5% VAT rate for hospitality

There is strong evidence for a reduction to 5% VAT for hospitality in a move which could create as many as 310,000 jobs, raise additional tax revenue and reduce VAT fraud

The case for a reduction in the UK

Cost of reducing VAT to 5%:£1.5b to £3.4b (higher end of range applies if alcoholic beverages were included)

Number of jobs that can be created:150,000 to 310,000 (higher end of range applies if alcoholic beverages were included)

Fiscal cost per new job in hotel and restaurant sector:£6,900 to £16,300

Source: VAT Club (Jacques Borel)

VAT and UK job creation
VAT and UK job creation

Other benefits for the UK

â- Less incentive for businesses such as small cafés and B&Bs to stay below the VAT threshold of £71,000
â- Less under-reporting of cash receipts. The "shadow-economy" is currently estimated at about 12% of the total UK economy by the University of Linz in Austria
â- A reduction in the UK's tourism deficit which stood at £20.5b by 2008

The French Experience

In July 2009, France decreased VAT from 19.6% to 5.5% for restaurants and cafés. Hotels were already taxed at the lower rate. Alcohol remained at the higher rate of 19.6%. A report by French senator Michel HouÁ«l in October 2010 and research by Jacques Borel showed that in the 15 months since that move:

€2.6b (£2.3b) Cost to the state for the reduction
€3.1b (£2.7b) Amount repaid by the restaurant industry
2.1% Reduction in café/restaurant prices

French restaurants VAT
French restaurants VAT" target="_blank" rel="noreferrer">Sign our petition to reduce VAT to 5% for hospitality businesses.

Support the campaign by downloading and displaying our Slash VAT, Boost Business poster.

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