A 7.5% increase in VAT is set to hit the hospitality industry in London and the South East from 1 October, according to experts.
Scott Craig, partner and head of VAT at Azets has warned Covid-19 recovery will slow and even cause “a number of permanent closures”.
The original cut, from 20% to 5%, came into effect on 1 July 2020 and from 1 October 2021, the rate will increase to 12.5%, applied until 31 March 2022.
According to Craig, the hospitality industry has not had sufficient time to benefit from the cut and some businesses could face permanent closure.
The rate applies to suppliers of restaurant services, hot takeaway food, holiday accommodation and admission to some attractions.
Craig said: “As restrictions have lifted, businesses have no doubt benefitted from the reduction in VAT but for some the increase to 12.5% comes too soon.
“Increasing the VAT rate will reduce the income received by many and this could lead to unnecessary closures of businesses that could have been in better financial health six months from now.”
Tim Wedgwood, hotel turnaround specialist and owner of South Lawn Hotel, said: “Gross profit percentages on food sales have dipped from 80% to 62%, and wages costs which historically represented a third of sales in the hotel sector are rising sharply driven by the lack of labour post-Brexit.”