What we will cover:
This summer, the government introduced a temporary 5% VAT rate for certain family activities, attractions and children’s meals, designed to support businesses during the busy summer period while also helping families with the cost of days out.
The scheme runs across the summer before the affected supplies return to their normal VAT treatment.
On the face of it, reducing VAT from 20% to 5% sounds like a significant helping hand. But as we approach the end of the scheme, I think it’s worth asking a much more important question:
Has it actually worked for small businesses?
A welcome boost during a difficult trading period?
Many small businesses in hospitality, leisure and tourism have faced considerable increases in their running costs over recent years.
Wages, energy bills, food costs, insurance, rent and many other overheads have increased. At the same time, customers have been dealing with their own cost-of-living pressures and are understandably thinking more carefully about where they spend their disposable income.
For businesses that qualified for the temporary 5% VAT rate, the scheme potentially offered some welcome breathing space.
Some businesses may have chosen to pass the VAT saving on to customers by reducing their prices. This could have helped make family meals, attractions and days out more affordable and potentially encouraged more people through the door.
Others may have decided to retain some or all of the benefit within the business.
I don’t necessarily think that should be viewed negatively.
Small businesses need to make a profit to survive. If retaining some of the VAT saving has helped a business cover increasing costs, protect jobs, invest in equipment or simply improve its cash flow, then arguably the scheme has still achieved something worthwhile.
But did customers actually notice?
This is where I’d be interested to hear from businesses themselves.
- Did the temporary VAT reduction result in an increase in customer numbers?
- Did customers spend more?
- Did businesses notice an improvement in their margins or cash flow?
- Or was the difference swallowed up by the increasing costs of running the business?
A temporary tax reduction can look impressive when announced, but the real test is what happens on the ground.
For a small independent café, family attraction or leisure business, the practical impact matters far more than the headline.
There is also an administrative cost
As an accountant, there’s another side to the scheme that shouldn’t be overlooked.
Businesses have had to identify which of their sales qualify for the reduced rate and which remain subject to the normal VAT rules.
For some businesses, that can mean operating different VAT rates at the same time.
They may have needed to update their tills, booking systems and accounting software, brief staff and make sure everything flows correctly through to their VAT returns.
Then, when the temporary scheme ends, those systems need to be changed again.
For larger organisations with dedicated finance teams, this may be relatively straightforward. For a small business owner already juggling customers, staff, suppliers, marketing and administration, it’s another job to add to the list.
Should the Government extend it?
Perhaps the biggest question is what happens next.
If the scheme has genuinely helped small businesses, should it simply disappear at the end of the summer?
Would a permanent reduction in VAT for certain parts of the hospitality and leisure industries provide more meaningful support?
Or would businesses prefer completely different measures to help them manage their costs and encourage growth?
I’d particularly like to hear from small businesses that have actually benefited from the 5% rate this summer.
Has it made a noticeable difference to your business?
Did you pass the saving on to your customers, retain the benefit within the business, or do a mixture of both?
Have you seen increased customer numbers or improved margins?
And finally:
Was the Government’s 5% summer VAT scheme a welcome relief – and would you like to see it extended or brought back next year?
I’d love to hear the experiences of businesses that have been using it. The numbers on a government announcement are one thing, but what really matters is whether the scheme has made a difference to the small businesses it was designed to support.
