Hospitality VAT cut may not be passed on to customers

VAT (value added tax) will be cut from 20 per cent to five per cent for businesses in the hospitality and tourism industries, chancellor Rishi Sunak revealed in his mini-Budget on July 8.

A £4bn cut in VAT has come into force today (July 15) and will remain in place until January 12, 2021, allowing firms in the food, drink and hospitality sectors to slash prices.

VAT is a tax paid by businesses to HMRC on the items or services they sell. It is typically passed on to consumers in the price they pay for these goods and services.

The cuts will last for six months until January 12, 2021 with the idea being that businesses will pass on the tax savings to households in the form of lower prices.

The VAT cut will apply to food and non-alcoholic drinks eaten in at restaurants, pubs, bars, cafés, and other similar premises across the UK. It will also apply to accommodation and on admission to attractions.

Hotels - Ibis, Mercure, Novotel, Sofitel have announced that full savings passed onto future bookings and to eligible food and drink prices from today.

Starbucks and McDonald's also promised price reductions after the chancellor ordered a temporary VAT cut from 20% to 5%.

The Treasury estimates households could save £160 a year on average, but not all firms will pass on the benefit.

Many companies are expected to use the windfall to shore up finances hit by the lockdown, rather than cut prices.

On Tuesday (14 July), Starbucks said it had made the decision to pass on the full 15% discount on coffee served in company-operated stores. Other shops and venues with Starbucks licences will be left to pass on whatever reductions suit their business.

And McDonald's said it had recommended its franchisees cuts prices on an array of products, including classics such as the Big Mac and Quarter Pounder.