Pubs, restaurants & hotels to retain 15% VAT rate until 1 January 2010

Pubs, restaurants and hotel bars remaining open past midnight on New Year’s Eve have been told they can continue charging VAT at 15 per cent until they close, or until 6am on 1 January, to avoid the ‘headache’ of splitting takings across two days.

MP and financial secretary to the Treasury Stephen Timms confirmed last week that the temporary 15 per cent rate would be extended into 2010 for businesses that account for VAT at the point of sale.

He said: “New Year’s Eve celebrations are a vital source of income for many in the service sector. The government recognises that it would be very difficult for them to make the necessary changes to account for VAT at 17.5 per cent immediately after midnight.”

Hit to margins

However, while hospitality businesses will welcome the news of the extension, accountants have warned that returning to the 17.5 per cent rate in 2010 after a year at the lower one could have a detrimental effect on trade, especially during the after Christmas lull in January.

Richard Hathaway, head of travel, leisure and tourism at KPMG, said: "While pubs, clubs and restaurants will be relieved the taxman has extended the 15 per cent VAT rate until 6am on New Years Day for retailers serving customers at midnight on 31 December 2009, there is the potential 2.5 per cent hit to margins to contend with in the traditionally quiet new year period. How restaurants and pubs choose to deal with this change remains to be seen."

Fay Armstrong, VAT advisor at Dodd & Co Chartered Accountants, added: "The increase in the VAT rate next year will cause as many problems as the decrease did last year. Hopefully this concession will solve at least one of them."