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The case for reducing
VAT – is there one?
Measures that encourage investment still
offer the most beneficial impact for industry
D
With the general election only a
few months away, questions are
being raised about the measures
that a new government could introduce
that would improve the prospects of
Pre-tax profits at the chain fell from £5.6m n 2008 to £3m in 2009 the hospitality industry. One of the
most persistent is a reduction in VAT
Carluccio's profits hit by costs
on either hotel accommodation or
restaurant meals or both. We need to
Italian chain maintains plans to open five new sites
approach this cautiously.
Certainly, there is strong evidence
By Tom Walker cent to £4.7m Carluccio's that tourism is looked upon more BOB COttOn is
expanded its portfolio over favourably in other EU countries than chief executive of
London-based Italian restaurant the past year with the opening in the UK. The vast majority already the BHA. Leisure
chain Carluccio's has blamed of six stores, including its first imposes a lower rate for hotel Opportunities is a
increased operating costs in the Middle East and a accommodation or will shortly. France, member benefit of
and the weak pound for a second under franchise, Spain and Italy, three of Britain’s major the BHA, for your
46 per cent decline in profits while plans are still in place tourism competitors have had a lower free copy call
for the year ending 27 to deliver at least five new VAT rate on hotel accommodation for 01462 471915
September 2009. sites in 2010 - including Cardiff many years. Far fewer have introduced
Statutory pre-tax profits and Wimbledon, London. a lower rate for restaurant meals.
decreased from £5.6m to £3m The company's executive chair But would a cut in UK VAT to, say, five per cent help generate
compared with the previous Stephen Gee said: "Despite the stronger home demand? Some put forward the argument that it
year, although the company challenging economic environ- would increase demand and raise turnover, thus increasing the
did see an 8 per cent increase ment, our business has total tax take. This, however, is difficult to sustain. Turnover
in turnover during the performed robustly, delivering would need to rise significantly to remain even revenue-neutral
12-month period and currently an adjusted profit before tax to the Treasury – an unlikely development in the present
remains debt-free. Adjusted slightly ahead of consensus economic situation.
profit before tax fell by 16 per market expectations. At present – and for the foreseeable future – the low value of
sterling against the Euro and dollar is a much greater factor in
lowering prices to overseas visitors than any realistic cut in
Task team to tackle underpayments
VAT. In any case, any cut in VAT would not affect UK corporate
business which comprises 20 per cent of domestic spend in
HM Revenue and Customs paying below the minimum hotels. If the industry is to argue for a cut in VAT it has to
(HMRC) has created a new wage – something relatively answer a number of questions: what are the overall benefits to
group to prevent employers commonplace in the the industry, how much of the cut would be passed onto the
from underpaying staff, hospitality industry. consumer, how much would demand increase, what is the cost
particularly in the hospitality In fact, the hospitality to the Treasury, and what is the likely impact on jobs? So far,
industry. industry was singled out in we have no precise answers.
The Dynamic Response HMRC’s press release One thing, however, is certain: investment remains critical.
Team will work on the most regarding the scheme. Since So would not the hospitality industry have a better case if it
high profile and complicated last April, the HMRC has argued that any changes in the tax laws should be used not to
National Minimum Wage helped around 14,000 try to stimulate demand through VAT cuts but should
(NMW) cases faced by HMRC, workers recoup more than encourage businesses to grow by more investment?
particularly where employers £3m in wage arrears, and There is a powerful argument that any measure that
are using migrant labour to £640,000 of this was in the encouraged investment would have a much longer lasting and
undercut competitors by hospitality sector alone. more beneficial impact on hospitality businesses than a
reduction in VAT.
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