The temporary reduced rate of VAT was introduced on 15 July 2020 to support the cash flow and viability of around 150,000 businesses and protect over 2.4 million jobs in the hospitality and tourism sectors. As announced at Budget 2021, the Government has extended the temporary reduced rate of VAT of 5% for the tourism and hospitality sector. This relief ended on 30 September. On 1 October 2021, a new reduced rate of 12.5% was introduced to help ease affected businesses back to the standard rate. This new rate will end on 31 March 2022.
This relief will cost over £7 billion and, while all taxes are kept under review, there are no plans to extend the 12.5% reduced rate of VAT. The Government has been clear that this relief is a temporary measure designed to support the cash flow and viability of sectors that have been severely affected by COVID-19. It is appropriate that as restrictions are lifted and demand for goods and services in these sectors increases, the temporary tax reliefs are first reduced and then removed in order to rebuild and strengthen the public finances.