VAT Cut

What’s happening? At the moment, VAT (value added tax) relating to these sectors is charged at the standard rate of 20% that applies to most goods and services. But now the government has said that for the next six months it is cutting VAT on food, accommodation and attractions from 20% to 5%. VAT is a tax paid by consumers but collected by businesses.

What does this apply to? Lots of things, including meals in restaurants, cafes and pubs, and hot takeaway food bought from these businesses; accommodation in hotels and B&Bs and at campsites and caravan sites; and venues and attractions such as cinemas, theme parks and zoos. However, while the temporary lower rate applies to non-alcoholic drinks, it does not apply to alcoholic ones.

When is this happening? From 15 July until 12 January 2021.

So how much could I save? Daniel Lyons, the head of tax policy at accountants Deloitte, said: “The rate change could mean a range of savings for consumers. For a pub meal costing £45 without alcohol, a couple could expect to save £5.62, while a £54.50 one-night stay at a hotel in a family room would see a saving of £6.81. A family ticket to a theme park or zoo costing £144 could see a saving of nearly £18.”
But there is a big “but”.

What’s that? It remains to be seen whether businesses will pass on all, some or none of the savings to consumers, or pocket the difference themselves. Traditionally there has been nothing in place to force a business to cut its prices in line with any VAT cut, and some companies are likely to use the reduction as a way to rebuild their finances. However, the government has said that further guidance on the tax cut will be published by HM Revenue & Customs in the next few days, so perhaps we will find out more then.

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