The government should consider announcing a broader VAT cut at the Autumn Budget to support the hospitality sector
The government should consider a broader VAT cut at the Autumn Budget to support the hospitality sector, say leading audit, tax and business advisory firm, Blick Rothenberg.
Julie Park, a partner and head of indirect tax at the firm, said: “The government has introduced a temporary 5% VAT rate for certain children’s meals, children’s tickets and family attractions, which started on 25 June and ends on 1 September 2026. The measure is welcome, but announcing a broader VAT cut at the Autumn Budget would better address the wider pressure facing hospitality businesses.”
She added: “A wider VAT cut would clearly come at a significant fiscal cost, so any reform would need to be carefully targeted. However, the current position leaves hospitality carrying a 20% additional tax burden on food sales that affects pricing, investment and viability.”
Julie said: “Under the current rules, many food items bought from a supermarket for home consumption are zero-rated for VAT. By contrast, food eaten in a restaurant, pub or café is subject to VAT at 20%. Pubs, cafés and restaurants are already facing higher wage bills, food costs, energy costs, rent and business rates, while also having to compete with supermarkets and convenience retailers whose cold food sales are often zero-rated for VAT.”
She added: “The VAT difference is not always visible to consumers, but it has a direct impact on hospitality businesses. For a standard-rated £12 restaurant meal, £2 of the price is VAT before the operator has paid for ingredients, wages, rent, energy, insurance or other costs. The issue is particularly acute because the hospitality sector is made up overwhelmingly of small businesses, many of which are labour-intensive, locally based and already operating on tight margins.”
Julie said: “The VAT issue affects the UK’s competitiveness as an international visitor destination. Many European countries apply lower VAT rates to parts of their hospitality and tourism sectors. In popular visitor markets such as France, Spain and Italy, restaurant, café and hotel services have often benefited from reduced rates below the UK’s 20% standard rate.”
She added: “UK hospitality businesses are not only competing with supermarkets and at-home food options; they are also competing with European destinations where the tax burden on hotels, restaurants and cafés may be lower.”
Julie said: “Tourism is a major market for UK hospitality, particularly in cities, coastal towns and cultural destinations. Visitors do not look at VAT in isolation, but they do experience it through the total cost of a trip: accommodation, eating out, attractions and travel.”
She added: “If the UK is already perceived as an expensive destination, a 20% VAT rate on many hospitality supplies makes it harder for operators to compete with European destinations where reduced rates are more common.”
Julie said: “Tourists support far more than hotels and restaurants. They support theatres, museums, shops, transport providers, local suppliers and jobs across the wider visitor economy. If the UK wants to grow inbound tourism, the VAT treatment of hospitality should be part of that conversation.”
She added: “If hospitality businesses close, reduce opening hours, cut jobs or cancel investment, that has consequences for employment, high streets, town centres, suppliers, landlords and local economies.”
Julie said: “The hospitality and tourism sector has campaigned for a lower VAT rate for many years. During the Covid-19 pandemic, the government introduced a temporary 5% VAT rate for hospitality, holiday accommodation and attractions, followed by a transitional 12.5% rate before the standard 20% rate returned in April 2022.”