Costs rising

VAT hike and end of furlough head big weekend of change

Seafood Restaurant

The VAT rise will hit the hospitality sector

British business and more than 1.6 million workers are facing a nervous weekend as the discount on VAT and the furlough scheme are among a number of government support measures that will come to an end.

Businesses which benefited from the cut in VAT from 20% to 5% in July last year will see it hiked to 12.5% from Friday (1 Oct), while the furlough scheme will end after 19 months propping up jobs across the economy.   

The small employer Sick Pay Rebate and the Apprenticeship Incentive – will also end, meaning that small employers could find their operating environment becoming less hospitable from Friday. The £20-a-week addition to Universal Credit for struggling households will be withdrawn on 6 October.

The Federation of Small Businesses says the Government has not published statistics yet on the usage of the Coronavirus Statutory Sick Pay Rebate Scheme.

“However, we believe it is likely to be in the hundreds of thousands.,” says the FSB. Alongside testing and vaccinations, the SSP rebate gives confidence that employers can afford the bill when staff fall sick or are told to self-isolate.  

Meanwhile, the Apprenticeship Incentive, offering £3,000 to businesses in England which took on an apprentice, also runs out today.

The ending of these schemes come at a time of sharp rises in the price of wholesale gas and oil, and the panic over petrol shortages. Inflation is expected to hit 4%.

The restrictions on the issuing of winding-up petitions, a common trigger for corporate insolvencies, also expire today – although the threshold for the debt that a company must owe to its creditors before a WUP can be issued against it has been raised to £10,000, from its pre-pandemic level of £750, until 31 March 2022.

VAT rises to 12.5%

Economists and tax specialists say the increase in VAT will be felt particularly by the hospitality industry and could threaten the survival of some of those which are just recovering from the lockdown.

The rise to 12.5% will remain in place until 31 March next year and will then return to the full 20% rate. The lower rate applies to suppliers of restaurant services, hot takeaway food, holiday accommodation and admission charges for some attractions.

Scott Craig, partner and head of VAT at Azets, the UK’s largest regional accountancy firm and business adviser to SMEs is warning that the hospitality industry has not had sufficient time to benefit from the cut.

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