Chancellor cuts VAT on hospitality as part of £30 billion rescue plan

Chancellor Rishi Sunak has announced a £30 billion plan to prevent mass unemployment due to the impact of COVID-19, including a temporary VAT cut on food, accommodation and attractions from 20 per cent to 5 per cent.

Sunak described the cut, which will last for an initial six months, as a “£4 billion catalyst” that could help to save “over 2.4 million jobs. It will apply to eat-in or hot takeaway food and drinks from restaurants, cafes and pubs, as well as hotel, B&B, campsite and caravan site accommodation and at attractions such as cinemas and zoos.

In a blow to pubs and licensed businesses, the VAT cut does not apply to alcoholic drinks, which will remain liable to the 20 per cent rate.

The Treasury said that it hoped firms would pass the VAT savings on to customers, but that the decision would be left with businesses. With many of the businesses set to benefit having been without income for months it is uncertain whether customers will see savings.

Genevieve Morris, head of corporate tax at accountants Blick Rothenberg, said it would be “a case of watch and see whether it is the consumer that benefits,” adding that: “The indication from the chancellor’s statement is that he expects this to reduce prices and encourage spending, but many businesses that have had 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?”

Other measures announced by the Chancellor include a £1,000 bonus to firms for every staff member kept on for three months once the furlough scheme ends and a scheme to offer people 50 per cent off dining out in August.

The £30 billion package brought coronavirus-related public spending up to almost £190 billion. But, despite the positive effect this has had for many businesses, it may complicate the efforts of some looking to go to market as the economy opens up again.

It is possible that potential buyers will start to look more closely as a business’ pre-pandemic performance in comparison with industry averages to assess the actual impact coronavirus has had on the company.

Those who have received government assistance should prepare to explain to potential investors what they did with the money and why.


For more on previous Treasury announcements, check out our reports on the Bounce Back Loan scheme, the Coronavirus Business Interruption Loan Scheme and the cut to Entrepreneurs' Relief in the Spring Budget .

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