indirect taxation; hospitality VAT holiday Flashcards
(11 cards)
What did the UK government do at the height of COVID in July 2020?
Gave hospitality and tourism sector a 15% cut in VAT.
What is the standard rate of VAT and what was it cut to for hospitality?
Standard is 20% and it was reduced to just 5%.
Why did the government cut VAT for hospitality?
To help support a sector hit particularly hard by closure of large parts of the consumer economy.
How long did the lower rate of VAT last for?
Until March 2022.
What did the VAT cut allow firms to choose?
To lower their prices or retain the extra 15% of sales for themselves.
What did some pubs choose to do with the VAT cut?
Reduce the price of alcohol, which the cut did not apply to and recoup losses by maintaining food prices in hope to drive up footfall.
What do some argue about the temporary VAT cut? Why?
That the VAT on hospitality and tourism goods should be lowered permanently.
One reason is due to many other European countries having lowered their VAT on domestic hospitality.
Another is that the industry is highly price sensitive, competitive and a large employer.
What do critics argue against the plea for permanently lowered VAT rates for hospitality?
That there are increased administrative costs of such schemes and instead of offering a range of special reduced rates, that the economy would be better off with a lower standard rate.
When was VAT first introduced to the UK and at what rate?
1973 at 10%.
How much of UK revenue did VAT generate in 1978? What happened by the 2000s?
7%, which more than doubled by the 2000s making it a key source of government revenue.
What are the long run effects of increased VAT?
It can mean less employment due to higher prices and suppressed demand, which can mean lower profits. All this reduces government revenue in the long run.
