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There’s an overwhelming sense of doom and gloom in the hospitality industry, evident by continuous headlines and exposés.
The higher VAT rate is a big problem for hospitality businesses with an underrated ripple effect on hospitality. Still, businesses must hold on to some sort of hope, drawing strength from the innovation and resilience that characterises this sector so well.
In this article, we’ll examine how VAT affects businesses and how automated accounting can boost profits during challenging times.
Pounded By the Perfect Storm
Since the pandemic, the hospitality industry has experienced an endless barrage of challenges.
While the temporary VAT reduction to 5% was a relief during COVID-19, the return to the standard 20% (the second-highest rate in Europe) placed a huge burden on UK hospitality businesses.
The cost-of-living crisis and soaring inflation have squeezed business margins and consumer spending power. Energy prices have skyrocketed, while the recent 9.8% rise in the national living wage adds more financial pressure on operators.
Government seems inflexible
Owners and operators across the UK have repeatedly called on the government to address the VAT burden.
In 2023, more than 6,000 hospitality businesses closed, including a number of high-profile restaurants. Simon Rimmer’s Greens closed just a few days into 2024: “I feel like I’m in mourning. This was my first restaurant and to shut the doors on it, it’s heartbreaking“, Rimmer shared in a recent video.
I feel like I'm in mourning. This was my first restaurant and to shut the doors on it, it's heartbreaking.
Despite the pleas, the government’s response has been tepid at best. Professionals in this sector were disappointed by the last Spring Budget, which once again left the VAT reduction out.
A difficult balancing act
Hospitality businesses face the complex dilemma of either passing on VAT to customers or absorbing it as an expense.
As Outmin’s CFO, Conor Stanley, points out:
Hospitality businesses often see VAT as an expense. They don't pass an increase in VAT across to their customers as easily as other types of businesses. A lot of hospitality is price-sensitive.
The prevailing sentiment is to “take it on the chin” and absorb the VAT hike rather than risk alienating customers with price increases.
But is that sustainable? And, for how long?
Policymakers have their own conundrums: “If they keep the VAT rate, they will have less amount of revenue to tax at that percentage. But it would be better to have more revenue and less of a percentage.”, Conor explains.
One thing is certain: hospitality businesses are struggling to survive. It’s a nerve-wracking dance between managing costs, preserving customer loyalty, and complying with regulations.
Can Automated Accounting Bring Much-Needed Relief?
For now, businesses seem unable to count on the government to address this situation. But necessity breeds innovation, right? This is where automated accounting comes in.
At Outmin, we see the benefits of automated accounting first-hand: businesses are reducing their accounting costs by 66%, as PI Pizza did, and regaining endless hours wasted on admin work, just like Devour Bakery.
That’s the power of cutting-edge technology.
Many hospitality businesses still rely on outdated methods for their accounting function. Juggling a bunch of different systems, hiring expensive accountants who don’t always give them full visibility, and spending endless hours on manual tasks on top of already tight schedules.
Plus, what many hospitality owners fail to realise is that their time is money.
Outmin fixes all that by offering a solution that fully streamlines financial processes. By automating tedious processes, we free up valuable time and resources that can be redirected towards strategic initiatives.
We also give businesses something incredibly valuable: crystal-clear visibility of their financial health and insights that can help them grow instead of just survive.
All of these can have a huge impact on your bottom line.
Cheers To Perseverance
As we navigate stormy waters, one thing remains clear: the hospitality industry is resilient.
While the road ahead may seem daunting, there’s hope in the hospitality’s ability to overcome adversity. Automated accounting is just one tool in the arsenal, offering tangible solutions to relieve financial burdens.
So, here’s to perseverance, innovation, and the unwavering spirit of hospitality. We invite you to chat with us, no strings attached, to explore how Outmin can empower your business.