Chancellor Rishi Sunak has announced that VAT is to be cut to 5% for the hospitality sector, along with an “eat out to help out” discount at restaurants in his summer economic update.

The hospitality sector, including food (and non-alcoholic drinks), accommodation and attractions, will see VAT slashed from 20% to 5% from 15 July 2020 until 12 January 2021, which will provide a “£4bn catalyst”, the Chancellor said.

In addition to this the Chancellor announced an “eat out to help out” discount for the month of August, which will allow “participating businesses” to offer a 50% discount to customers dining out.

The discount will only be open from Monday to Wednesday throughout August, up to a maximum of £10 per head on a bill, including food and non-alcoholic drinks, but excluding alcoholic drinks.

At a glance the chancellor has announced:

  • a cut in VAT on food, accommodation and attractions from 20% to 5% until 12 January;
  • an “Eat Out to Help Out” discount of up to £10 per head to get Britons back to restaurants, cafes and pubs;
  • a £1,000 bonus for each worker that companies bring back from furlough and employ through to January next year;
  • a “kickstart scheme” to directly pay firms to create jobs for 16 to 24-year-olds;
  • cash for businesses to take on trainees and apprentices;
  • an eight-month temporary cut in stamp duty, with no charge on property transactions below £500,000;

Restaurants, pubs, cafes and other “eligible food service establishments” are required to apply via an online system to become participants and will at the point of sale bear the discounts themselves, before claiming back the amount online, which will be paid “within five working days”.

UKHospitality Chief Executive Kate Nicholls said:

“It is reassuring that the Chancellor singled out hospitality and tourism as a vital part of the UKs economy and a pillar of social life around the UK. It is also good to see that Government acknowledges that our sector has been uniquely hit by this pandemic.

“Customer confidence is key to our sector’s revival and our ability to help Britain’s economic recovery. Applying every precaution to provide safe venues will count for nothing if customers are not coming through our doors. This significant VAT cut, heightened ability to retain staff and incentives for consumers to eat out together amount to a huge bonus. We hope that the UK public rightly sees it as sign that we are ready to welcome them back safely. The future of many businesses and jobs depends on it.

“The measures to support job retention and recruitment are very positive. Even after the reopening of some venues, we estimate that around 1.5 million workers in our sector are still furloughed. With revenues likely to be down for the foreseeable future, the support measures to get workers off furlough and back into work will be greatly appreciated.

Jon Stevens, tax partner at global legal business DWF, said: “The hospitality sector has long campaigned for a reduced rate of VAT and it is a shame that it has taken the economic damage of COVID-19 to produce a temporary tax cut. However, businesses in the restaurant and hospitality sectors will welcome the reduction in VAT to 5% that will hopefully encourage people to spend money with them while we recover from lockdown.”

Joss Croft, UKinbound CEO said “The chancellor’s economic recovery plan clearly recognises the value of hospitality and tourism, and cutting VAT from 20% to 5% and the Eat Out to Help Out scheme will deliver immediate positive impacts for businesses and consumers. The Job Retention Bonus Scheme will also help tourism and hospitality businesses, but only those that survive into next year. These measures will not help the many businesses involved in inbound tourism who drive regional economies and jobs, and who are on the brink; longer-term support will still be required for these businesses, which have been hit even harder than domestic and outbound.”

FDF’s Chief Executive, Ian Wright CBE, said: “The FDF is extremely appreciative of the unprecedented support the UK Government and the devolved administrations have provided throughout this crisis. Up and down the country, the ‘Hidden Heroes’ of the UK’s food and drink industry have kept the nation fed through the last few difficult months. “

“The UK’s food and drink manufacturers who supply into the hospitality and catering trade have been hard hit by the crisis, as their customers disappeared overnight. These ‘squeezed middle’ firms will enthusiastically welcome the Chancellor’s announcement today to cut VAT on food and hospitality and slash the cost of eating out. We hope these measures will lead to a significant boost in demand for the hundreds of manufacturers who supply into hospitality and the out of home sectors and help them to manage increased supply costs.”

Peter Webb, managing director at Electronic Temperature Instruments (ETI) a digital thermometer manufacturer, producing digital and infrared thermometers for the food and drink service industry.

Peter Webb managing director at Electronic Temperature Instruments (ETI) : “These are unprecedented times therefore we need unprecedented measures. Hospitality businesses needed this welcome dose of reassurance and confidence in order to stabilise their business and support their workforces. This VAT cut confirms the government’s commitment to getting behind British business throughout this ongoing crisis and helps stabilise employment and supports productivity within this space. Traditionally, approximately 80% of our business comes from the food and drink space; what we call ‘farm to plate’, so this move is welcomed. This will continue to be a challenging year, with industry demand in the second half and into 2021 remaining unknown. We are now collectively relying on everyone to act responsibly when visiting hospitality outlets to ensure we don’t see another spike and that doors can continue to remain open to the public. Workers throughout this particular supply chain are counting on it.”