Temporary VAT Cuts on restaurants, bars and hospitality comes into effect

A cut in the rate of VAT on restaurants, bars and hospitality from 20% to 5% has come into force of today (15th July).

The temporary reduction will be in place until 12th January 2021 in a bid to get the UK economy kickstarted following months of lockdown due to coronavirus.

Costa Coffee, McDonalds, Pizza Express and Nando's are just some of the many major companies that have announced price reductions.

The move was announced by Chancellor of the Exchequer Rishi Sunak as part of the Summer Statement last week, as part of the effort to support businesses impacted by forced closures and social distancing measures.

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

An “Eat Out to Help Out” scheme was also announced by Mr Sunak, where customers who dine at eateries supporting the campaign between Mondays and Wednesdays will receive £10 per head off their meals throughout August.

VAT, or Value Added Tax, is paid on everyday goods and services, but the tax is usually included in the price most consumers see.

Some items however, do not require customers to pay VAT, newspapers and magazines, children's clothing and most supermarket foods.

Nando's said it would reduce the price of it’s quarter chicken by 55p and pass on "100% of the benefits" from the tax cut to its customers.

McDonald's also announced price reductions on several popular menu items, including the Big Mac, the Quarter Pounder and coffee.

Last week, the Association of Convenience Stores (ACS) received clarification that any vendor providing food and drink for consumption on the premises, or hot takeaway food or drinks are eligible for the reduced rate, including local shops.

Cold takeaway food and drinks are not included in the reduced rate.

ACS chief executive James Lowman said: “Local shops have done a fantastic job ensuring that they have been able to continue feeding their communities safely and effectively.

“We welcome clarification from the Treasury that convenience stores and other small shops will be able to benefit from the reduced rate of VAT on specific food and drink sales.”

Figures from the 2019 Local Shop Report show that almost one in four convenience stores have some form of hot food counter or cabinet (23%) with around one in six (15%) currently providing either indoor or outdoor seating for customers.

Guidance on the temporary reduced VAT rate can be found here.