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VAT reduction – who is it for and how do you handle it?

With the announcement last week from the Chancellor, Rishi Sunak, that VAT is being cut from 20% to 5% for certain areas of hospitality, we have been speaking to members who want clarity on what this means for their businesses.


Where is VAT being reduced?

The cut will apply to all food and non-alcoholic beverages served by pubs and other hospitality businesses, whether they are consumed on your premises or for take-away purposes.

If you have rooms in your pub, offer camping at your venue or otherwise provide holiday accommodation, the discounted rate is also available on the fees you charge for that accommodation.

Please note: the reduction in rate does NOT apply to alcoholic beverages (which remain standard rated) or optional service charges (which remain outside the scope of VAT), the position for obligatory service charges is less clear.

Also, contract catering is NOT included in the VAT reduction.


Do I have to reduce my prices to my customers?

The Chancellor’s plans around the VAT cut and the Eat Out to Help Out promotion are designed to stimulate growth and confidence for consumers to return to pubs and restaurants this summer.

However, you do not have to reduce your prices if you choose to keep the reduction benefit for your business.

It is worth bearing in mind though, that lots of venues will be using this opportunity to promote the discount and tempt customers back to their businesses.

You know your customers and your business best, and the cut allows you to choose how to use this VAT reduction in the best way for you.


Is there anything else I need to know?

It's important to note that even if you choose to keep the benefit of the VAT reduction for yourself, you must alter your prices to reflect the change. The correct VAT for items now at 5%, must be listed as such on your customer's receipt. 

In cases where you have already taken bookings for accommodation and a price (and therefore a contract) has been agreed, you could argue that a VAT reduction announced after that agreement had been made would not be applicable for the customer.

Again though, if you think the reduced rate will help you with occupancy levels and your customer would cancel if they were not to receive a discount, you may want to reconsider.

The full rules and exemptions are available on the Government website here, so we would encourage you to read through the guidance if you have any queries, or you can call the BII Helpline on 0330 058 3878.