Following the announcement of the emergency VAT cut for hospitality and tourism, Alison Horner, indirect tax partner at MHA MacIntyre Hudson, says businesses need to prepare carefully as quick VAT cuts can cause an administrative tangle:
“The emergency VAT cut is great news for travel and tourism but sudden VAT cuts always raise substantial administrative issues. Businesses must get on top of their preparation. In this case any premise serving alcohol will have to re-programme its tills to deal with three different VAT rates: one for alcohol at 20%, one for cold take-away food at 0% and 5% for everything else.
“In the past lack of preparation led to disaster. For example, the UK experimented with a VAT cut in response to the 2008 financial crisis which caused chaos for retailers. Some supermarkets were assured by HMRC that altering their prices would take only a few hours, but instead, they spent over a week in a crisis mode.
“Businesses need time to prepare but the Chancellor can’t give them too much time, or the anticipation of lower prices will lead to a slump in demand. The Chancellor was probably right to pick Wednesday 15 July as the date to introduce the cut; it hopefully gives business just long enough to sort this out.”