The UK government should consider a broader cut in value added tax at the Autumn Budget to support the hospitality industry, according to tax advisers who argue that the sector faces an increasingly unsustainable cost burden.
Julie Park, partner and head of indirect tax at Blick Rothenberg, said the government’s temporary VAT reduction for some family spending was welcome but insufficient to address wider pressures on pubs, restaurants and cafés.
“The Government has introduced a temporary 5% VAT rate for certain children’s meals, children’s tickets and family attractions, which started on 25th June and ends on 1st 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.”
Park acknowledged that reducing VAT would carry a substantial cost to the Treasury and said any intervention would need to be targeted.
“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.”
The central issue is the disparity between food purchased from supermarkets and food consumed in hospitality venues. While many supermarket food items for home consumption are zero-rated, meals sold by restaurants, pubs and cafés are generally subject to the 20% standard VAT rate.
“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.”
For consumers, the difference can be substantial. Park said that £2 of a £12 restaurant meal represents VAT before businesses have covered their underlying operating costs.
“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 tax burden could also weaken Britain’s position as an international tourism destination, she argued, with several major European markets applying reduced VAT rates to hospitality and tourism.
“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.”
Park said the impact extended beyond individual businesses, warning that closures and reduced investment could affect employment, suppliers and local economies.
“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.”
The industry has previously benefited from temporary VAT relief. During the Covid-19 pandemic, the government cut the rate to 5% for hospitality, accommodation and attractions before introducing a transitional 12.5% rate and restoring the 20% standard rate in April 2022.
Leave a Comment