Hospitality Industry: VAT

VAT is a broad-based tax on consumption, and the 20 per cent standard rate applies to most goods and services. Reduced rates of VAT come at a significant cost to the Exchequer and reduce the revenue available for vital public services. Any reduction in tax revenue would mean higher borrowing, lower spending, or increases in other taxes.

HMRC estimates that, in 2026-27, reducing the standard rate of VAT on accommodation and food and beverage services would cost approximately: £5 billion if reduced to 15 per cent; £8 billion to 12.5 per cent; £10.5 billion to 10 per cent; £17 billion to 5 per cent; and £23.5 billion if zero-rated.

One of the key considerations when assessing a new VAT relief is whether the cost saving is likely to be passed on to consumers. Evidence suggests that businesses only partially pass on any savings from lower VAT rates.

The Government is already supporting hospitality through targeted measures, including permanently lower business rates multipliers, a £4.3 billion business rates support package, and the temporary Great British Summer Savings scheme, which will reduce VAT from 20 per cent to 5 per cent on eligible family attractions and children's menu meals between 25 June and 1 September.