Tax parity day

Up to 15,000 pubs and restaurants across the country will be lowering their prices in a bid to highlight the benefits of a reduction in VAT for the hospitality industry, declaring today, 25 September 2013, Tax Parity Day report Harris & Co chartered accountants Northampton, the specialist small business accountants.

Wetherspoons, Punch Taverns, St Austell, Enterprise Inns, Heineken and Fuller’s are among those who have agreed to drop prices on food and drink by 7.5%, to promote the benefits of cutting VAT to 5%.

Hundreds of independent pubs are also expected to join the campaign which is designed to highlight the fact that while pubs and restaurants pay 20% VAT on food and drinks, supermarkets are zero-rated for VAT on the food they sell.

The day is being organised by veteran French lobbyist Jacques Borel, who has signed up 44 pubs, restaurants, hotels and food service firms to support his calls for a cut in VAT on food served in the hospitality sector from 20% to 5%.

Borel said: ‘A reduction in the level of VAT on a long-term basis will generate growth and create jobs in the important leisure and hospitality sector.’

The campaign estimates the net fiscal cost to the Exchequer as a result of the proposed VAT cut would be between £0.7bn and £3.1bn per annum, with the higher end of the range applying if alcoholic beverages are included in the reduction.

This includes a direct loss of VAT receipts of between £5.5bn (if the VAT reduction excluded alcoholic beverages) and £7.8bn (if the reduction covered alcoholic beverages as well). However, campaigners argue that the indirect gains to the Treasury from higher turnover, more VAT registrations, higher income and corporation tax receipts and lower social security payments would reduce this considerably.

The campaign has calculated that a cut in VAT to 5% would see prices will fall by around 7.5%, which represents a pass-through of 60% of the decrease in tax, with the remaining 40% used for other benefits such as higher wages and investment. Experience from other European countries, including France, Germany, Ireland and Sweden, suggest an increase of around 10% in customers, requiring additional staff.

Chris Sutton, hospitality and leisure partner at MHA MacIntyre Hudson, said: ‘Hospitality businesses outside London continue to struggle in the face of tough economic conditions with pressure on margins and little head room for investment. A cut in the rate of VAT from 20% would go a long way to helping such businesses as would help with capital allowances for example which have seen considerable erosion over the past few budgets.’