Accommodation providers could boost forward bookings by sharing VAT savings

With holidaymakers getting itchy feet to enjoy their next getaway, and many looking to secure a UK break against a backdrop of uncertainty around foreign travel, hoteliers and owners of campsites, guest houses and B&Bs are preparing for a bumper summer.  

 

Richard Andrew 2

The easing of restrictions, coupled with pent-up demand this year will bring many businesses the boost they waited more than 12 months for. Added to this, with the extension of the reduced 5% VAT rate until 30 September there is an opportunity for business owners to incentivise early payments and further bolster booking by sharing some of the VAT saving with guests.  

Businesses aren’t obliged to pass on the saving to customers, but Richard Andrew, Head of Accounting at Armstrong Watson, says it could be beneficial.  

Any monies received before the VAT uplift in October will only be liable to 5% VAT, and any received between October 2021 and March 2022 will only be liable to 12.5% VAT before it returns to 20% in April 2022. 

Richard, who is also a director of the Lakes Hospitality Association and has been providing business advice to hospitality and tourism businesses for over 15 years, says: “This is especially worth bearing in mind if in 2022 all those who’ve missed out on a holiday abroad for two years are keen to jet off to warmer climates. By making the most of the VAT savings and offering attractive rates to secure forward bookings before next April, businesses will put themselves in a healthier position for 2022, especially if new customers are so encouraged by this year’s trip they decide to return.

“Meanwhile, overseas tourists wanting to visit the UK have also missed out. Businesses could secure these bookings for next year before the VAT uplift - and still account for inflationary increases – by offering highly competitive rates. An additional benefit here is that overseas tourists tend to stay for longer than domestic tourists.”

Accommodation providers are not expected to give discounts or refunds on deposits already paid or any remaining balance, but for consumers looking to make a booking, it will be worth shopping around.  

Businesses will need to factor in that payments beyond March will be liable to the full 20%, even if the booking was made before October 2021.  

Richard adds that while next spring and summer look healthy, managing the cash flow from these forward bookings is essential.  

“Businesses will still need to consider the impact of any deferred payments, including VAT and tax liabilities and the end of any arranged payment holidays. The impact of starting repayments on any additional borrowing taken over lockdown will also need to be factored in,” he says.  

“Whilst it is very easy for the sector to be swept up by renewed enthusiasm for the industry, thinking further ahead and being prepared, will help ensure the resilience needed as we exit lockdown and make the most of the remainder of 2021, entering into 2022 in a stronger place.” 

The extension of the reduced VAT rate is an effort by the Government to support 150,000 businesses in the sector and to protect 2.4m jobs. It’s estimated to cost the Treasury £4.7bn