Restaurants could benefit from EU's VAT reduction

Britian’s hospitality industry could benefit enormously if EU plans to permanently reduce VAT rates to as low as 5 per cent are introduced.

The move was put forward yesterday by Laszlo Kovacs, taxation commissioner, who said that all Member States should have exactly the same options, although the proposal is entirely voluntary.

“There is no reason why restaurant services, for example, should be allowed to benefit from a reduced rate in one half of the European Union but not in the other half,” he said.

Goods and services are generally subject to a minimum of 15 per cent VAT in the EU, although Britain has imposed 17.5 per cent as standard. A drop to just 5 per cent would mean restaurants could get a major boost just as the credit crunch sets in.

However, the British Hospitality Association​ believes VAT rates in the UK will not change, as the government will be reluctant to lose money.

Martin Couchman, Deputy Chief Executive of the BHA said: “The reduced rates will have zero effect on the hospitality industry. The UK government will do nothing because they cannot afford to. All the proposal’s doing is giving the government the legal right to reduce the rate if they wish to.”

The Commission has said they will first need to prove the reduced rates will not impact the Internal Market, although it is certain that the supply of alcoholic drinks won’t be included in the proposal, in order to maintain a standard across both hospitality and retail industries.

The proposal will create a ‘level playing field’ for all countries, as reduced VAT rates on restaurant services are currently allowed in just 11 of the 27 EU countries. France has been lobbying for a reduced rate on restaurants since 2002.

For more information on what the proposal will mean for UK businesses, click here.​