Chancellor Rishi Sunak has opted to cut the tax on sales in the UK’s hospitality and tourism sectors until 12th January 2021.
Value Added Tax (VAT) will be slashed from 20% to 5%, in a bid to encourage consumers to go out and spend in the coming months.
It is the first time that VAT has been cut for almost a decade, having been raised to its current 20% level in January 2011.
The cut to VAT for the hospitality and tourism sectors will begin from Wednesday, 15th July, but will not include the purchase of alcohol.
The 15% drop in VAT rates effectively cuts the cost of goods and services for consumers, whilst limiting the amount of money that businesses send to the Treasury each quarter via VAT returns.
VAT cuts have been used to recharge the economy before
During the latest financial crisis in 2008, the Labour Chancellor Alistair Darling opted to reduce VAT across the board from 17.5% to 15%. This was maintained until 2010 and it was then increased to 20% in 2011 by the coalition Government.
What will the VAT cut cover?
Mr Sunak told MPs that the VAT cut will be applicable on all eat-in or hot takeaway food from restaurants, cafes and pubs, as well as non-alcoholic beverages.
The reduced 5% rate will also apply to accommodation in hotels, campsites, B&Bs and caravan sites, as well as dozens of attractions such as zoos, theme parks and cinemas.
Kate Nicholls, chief executive, UKHospitality, said: “It is reassuring that the Chancellor singled out hospitality and tourism as a vital part of the UK’s 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.
“This significant VAT cut, heightened ability to retain staff and incentives for consumers to eat out together amount to a huge bonus.”