In today’s Summer Statement Rishi Sunak announced that VAT will be cut from the current rate of 20% to 5% for the next six months in respect of hospitality and tourism which includes;
- eat in food in cafes, restaurants, bars, pubs etc
- holiday accommodation; hotels, B&Bs etc
- attractions such as cinemas, theme parks and zoos etc
The cut lasts from 15 July 2020 until 12 January 2021.
Around two million people work in the hospitality sector and it has been one of the hardest hit by Covid-19 and the government has recognised that it warrants further support. It is estimated that the move will benefit more than 150,000 businesses and consumers. This should encourage more consumer spending and help UK tourism.
Updates
HMRC has updated the relevant guides:
Notice 701/14 Food products and Notice 709/1 Catering, takeaway food
Notice 709/3 Hotels and holiday accommodation
Reductions to the relevant flat rate schemes (FRS) rates have also been announced. The two most relevant categories are catering and accommodation.
Commentary
A temporary cut of the standard rate from 17.5% to 15% was put in place during the financial crisis of 2008, but, by common consent, its impact was limited. So it remains to be seen how successful this announcement will be. It is not anticipated that the cut will be passed on to end consumers, but rather used to support potentially faltering businesses.