Fears VAT hike could be 'death knell' for restaurant trade

Rishi Sunak is poised to raise VAT to the despair of business owners like Hannah Springham, owner of Farmyard in Norwich.

Rishi Sunak is poised to raise VAT in April to the despair of business owners like Hannah Springham (inset), owner of Farmyard in Norwich. - Credit: PA/Submitted

Restaurant and cafe owners are warning that if a planned tax rise goes ahead their sector will be left in tatters. 

Chancellor of the exchequer Rishi Sunak is expected to raise VAT on soft drinks and food to pre-pandemic levels of 20pc in April.

Chancellor Rishi Sunak outside 11 Downing Street, London, before heading to the House of Commons to

Chancellor of the Exchequer Rishi Sunak - Credit: PA Wire/PA Images

Currently it sits at 12.5pc having been slashed during lockdown in a bid to save the stricken industry.

But restaurateurs say the increase is far too early with businesses still getting back on their feet.

Bosses say they are still feeling the effects of Covid through cancellations, staff falling ill and having to pay increasing food, staff and utility costs.

Andrew Jones and Hannah Springham, the Farmyard restaurant.

Andrew Jones and Hannah Springham, the owners of Farmyard Restaurant in St Benedicts Street, Norwich - Credit: supplied

Hannah Springham, who runs Farmyard Restaurant in St Benedicts Street, said: "The VAT rise is devastating. We as an industry are far from being back to normal in terms of trading.

"To have to pay more VAT is worrying. We have already raised our prices. The food prices are crippling."

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She added restaurants usually aimed for a 10pc profit margin but believed the VAT rise would make that a challenge with many aiming to simply "keep the doors open".

"For restaurants starting out the VAT increase is a mighty blow. Eating out in restaurants will cost more.

"I hope the government will see the VAT rise will be the death knell for restaurants and do a u-turn," she added.

Middletons Steakhouse and Grill, Timberhill, Norwich that has undergone a £500,000 refit after suffe

Stephen Hutton, managing director Middletons Steakhouse and Grill in Timber Hill, Norwich - Credit: Steve Adams

Steve Hutton, managing director at Middletons Steakhouse and Grill in Timberhill, said: "The high street is yet to see the worst of the pandemic.

"We are caught between the devil and deep blue sea because I don't want to increase prices as I don't want to deter customers. It is going to be a tough year."

He added this summer could be precarious for hospitality because he worried more people will holiday abroad rather than stay in the UK.

The restaurant owner who hailed the city's restaurant scene as "resilient" said the UK's VAT model should not be one-size-fits-all.

Richard Bainbridge, Benedicts, Norwich

Chef patron Richard Bainbridge, at Benedicts restaurant, pictured before the incident took place. - Credit: Archant

Richard Bainbridge, owner of Benedicts in St Benedicts Street, said: "It is going to be survival of the fittest.

"It is going to be a difficult year. The fantastic hospitality businesses will be here for years to come but we need the support of Norwich."

Taxing times for business

Between July 2020 and September 2021 the amount of VAT the sector had to pay was reduced from 20pc to 5pc by chancellor Rishi Sunak.

He later increased the payment to 12.5pc last autumn.

Mat Waters, partner and accountant at Lovewell Blake

Mat Waters, partner and accountant at Lovewell Blake - Credit: Lovewell Blake

Accountant Mat Waters, of city accountants Lovewell Blake’s hospitality team, said: "Over the 21 months of reduced rates, a business with annual income of £500,000 will have saved around £87,000 in VAT.

"This roughly equates to 10pc of its gross turnover. In many cases that will have been the difference between survival and going under.

"As hospitality finally starts to enjoy a slow return to normality there is a strong argument it is too soon to revert to a full rate of VAT, especially with all of the other cost pressures."