You are here: Home - Household Bills - News -

VAT reduction kicks in for tourism and hospitality firms

Written by: Emma Lunn
Meals out, hotels, and trips to theme parks and zoos should all become cheaper from today.

Chancellor Rishi Sunak cut the VAT rate for businesses in the tourism and hospitality sectors in last week’s summer budget.

The aim is to reduce prices, save jobs and encourage people to spend.

However, consumers will only benefit if businesses decide to pass the discount on.

What is VAT?

VAT stands for value added tax. It’s paid by businesses to HMRC on the items or services they sell.

It’s normally passed on to consumers in the price they pay for these goods and services.

Sunak has cut the VAT rate from 20% to 5% for businesses in the tourism and hospitality sectors to help them recover from lockdown.

The tax cut comes into effect today (15 July) and will remain in place until 12 January 2021.

Food and drink

Food and non-alcoholic drinks sold to eat or drink on the premises, for example in restaurants, cafés and pubs, should all be cheaper.

Hot takeaway food and hot takeaway non-alcoholic beverages, such as coffee, should also benefit from the cut.

Alcohol is not included in the VAT reduction but Wetherspoons said it will be reducing the price of a pint, as well as food and soft drinks.

The pub chain will offer a pint of Ruddles Bitter for £1.29 (down 50p), a pint of Doom Bar at £1.79 (down 31p), and guest beers at £1.99 (down 26p).

Lavazza coffee and tea will be reduced to £1.29 (down 16p), and soft drinks will be £1.69 for a 14oz glass of Diet Pepsi and £1.79 for standard Pepsi (down 11p).

Breakfasts will be reduced to £3.49 (down 41p), pizzas, including a soft drink will start from £5.49 (down 66p) and burgers and a soft drink will start from £4.99 (down 66p).

Hotels and tourist attractions

Accommodation such as hotel rooms, and pitch fees for caravans and tents are all included in the rate cut.

Tourists could also see reduced prices at fairs, amusement parks, museums, and cinemas.

Theatres and concerts will also theoretically benefit from the rate cut – once they are back up and running.

Will the tax cut be passed on to consumers?

But despite the promise of cheaper prices, it’s up to the businesses concerned as to whether they pass on the tax cut.

Many companies will use the windfall to shore up finances hit by the lockdown, rather than cut prices.

For example, The National Gallery has said that tickets to its paid-for exhibition of the works of Titian would not fall in price following the tax cut as it would be using the cash to repair it finances following lockdown.

Starbucks and McDonald’s have promised to pass on the reductions at company-owned stores – but where stores are franchised, it would be up to the franchisee.

Best Western hotels said it would be reducing the price of rooms and food in line with the cut on future bookings but anyone who had already booked a room will be subject to the old rate of 20%.

Genevieve Morris, head of corporate tax at accountancy firm Blick Rothenberg, said: “The indication from the chancellor’s statement is that he expects this to reduce prices and encourage spending.

“But many businesses that have huge losses over the past few months may use this to boost profits, by keeping headline consumer prices the same, and pocketing the VAT saving – and who can blame them if they did?”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

The savings accounts paying the most interest

It’s time to get your finances in shape, and moving your cash savings to a higher paying deal is a good plac...

Everything you need to know about being furloughed

Few people had heard of ‘furlough’ before March 2020, but the coronavirus pandemic thrust the idea of bein...

The experts’ guide to sorting out your personal finances in 2021

From opting to ‘low spend’ months to imposing your own ‘cooling-off period’, industry experts reveal t...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week