From Wednesday 15 July, VAT rates on hospitality and tourism are reduced from 20 per cent to five per cent in a bid to get the economy moving, following months of business closures.
In a statement to the House of Commons on 8 July, chancellor Rishi Sunak said the special measures would be effective for six months – until 12 January 2021.
The rules mean that VAT-registered businesses, which are normally legally required to charge a 20 per cent tax on the behalf of the government, can temporarily apply a five per cent rate to certain items, which will reduce the price at the till for customers.
So with the VAT on hospitality goods being reduced to five per cent – will customers feel the difference in their pocket when eating out or buying a round at the pub?
Will food and drink be cheaper?
VAT (value added tax) is a tax on the sale of goods and services. It is not a traditional type of tax (on your payslip from your employer) but one based on consumption – it is charged when you buy things.
Restaurants must always charge VAT on everything eaten either on their premises or in shared communal areas designated for customers to use (this is why you are asked if you are sitting in or taking away in certain establishments).
VAT does not apply to supermarket food and drink – but it does apply to food eaten in restaurants or in other hospitality venues like pubs.
The government says the VAT discount can apply to any of the following items:
Hot and cold food for consumption on the premises which they are supplied (For example, a restaurant, cafe, or canteen where you sit in for a meal)
Hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied (For example, in a restaurant or pub where you stay and don’t takeaway)
Hot food for consumption off the premises on which they are supplied (For example, getting a takeaway meal that you eat at home or anywhere other than the restaurant)
Hot takeaway non-alcoholic beverages for consumption off the premises (For example, coffee or tea to take away – if you stay in they will also be covered).
Third party supplies of catering for events and functions, such as wedding receptions, parties or conferences, should also be covered.
This means that food you buy in restaurants and cafes (e.g. sandwiches or coffee to go) will all be covered by the discount – so the prices you see should be lower.
Areas not included are; retail supplies of cold takeaway food, retail supplies of groceries and supplies of food that require “significant further preparation by the customer” (such as thawing or cooking).
This VAT discount is not the same as the “eat out to help out” voucher scheme, which will give every person a 50 per cent discount on restaurant food (up to the value of £10) at participating restaurants in August.
Will alcohol be cheaper?
There is one other exception to the VAT rules: alcoholic beverages. The government says the VAT holiday does not apply to booze.
“All references in this notice to “temporarily reduced rated” or “subject to a temporary reduced rate” are to supplies made between 15 July 2020 to 12 January 2021 that temporarily benefit from the reduced rate and which do not include any supplies of alcoholic beverages,” it says.
But some chains have already said they will be passing a VAT relief of at least 10p per drink and 20p per meal on to customers from Wednesday, despite the government message.
JD Wetherspoon announced on Monday it will be cutting costs on a number of “Sunak specials”.
In 764 of the chain’s pubs (it has almost 1,000 establishments nationwide), Ruddles Bitter Best country ale will be, on average, 50p cheaper at £1.29 per pint, Doom Bar will be £1.79 (down 31p), Greene King’s Abbot Ale (down 40p to £1.99) and a selection of guest ales from £1.99 (down 26p).
In promotional materials for the new Wetherspoon prices, a poster reads: “Rishi Sunak, legend: The man who instigated tax equality between supermarkets and pubs.” [Food and drink for human consumption is usually zero-rated but alcoholic drinks, crisps, savoury snacks, hot food, sports drinks, hot takeaways, ice cream, soft drinks and mineral water do not count].
As well as the alcoholic discounts, Lavazza coffee and tea will be dropped to £1.29, soft drinks start at £1.69 for Diet Pepsi and £1.79 for standard Pepsi.
On food a traditional hot breakfast will be £3.49, with pizza and burger meals down to £4.99.
Prices at the company’s 103 other pubs (located in city centres, airports and stations) will be around £1 higher but will still retain discounts to some degree.
Chairman Tim Martin said: “Wetherspoon will invest all the proceeds of the VAT reduction in lower prices, spread across both bar and food products, with the biggest reductions on real ale.”