VAT, which stands for Value Added Tax, is the tax you have to pay when you buy goods or services. The standard rate of VAT in the UK is 20 percent, and about half of the items households spend money on is subject to this rate.
Chancellor Rishi Sunak has announced he will be cutting the VAT on hospitality and tourism from 20 percent to five percent from July 15, 2020 to January 12 2021.
Mr Sunak’s aim is to “get the sectors moving and to protect jobs”, and the cuts will apply to accommodation and admission to attractions across the nation.
Meals out are a huge part of a holiday, will the cut apply to food too and do you pay VAT on food?
Express.co.uk talks you through Mr Sunak’s VAT cuts and how this applies to food.
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Do you pay VAT on food?
Most food is VAT-free but you do pay VAT on some food. Some items for human consumption are standard-rated.
This includes catering, alcoholic drinks, confectionery, crisps and savoury snacks, hot food, sports drinks, hot takeaways, ice cream, soft drinks and mineral water.
Restaurants must always charge VAT on something eaten on their premises or in communal areas designated for their customers to use, such as shared tables in a shopping centre or airport food courts.
Restaurants and takeaways must also charge VAT on all hot takeaways or home deliveries.
They don’t need to charge VAT on cold takeaway food unless it is to be eaten in a specific place.
The new changes coming into force on July 15 will reduce the VAT on these items to five percent.
This will apply to all food and non-alcoholic drinks from restaurants, pubs, bars, cafés and other similar businesses across the UK.
Alcohol will still be taxed at its current rate of 20 percent.
Mr Sunak said: “VAT on hospitality and tourism is charged at 20 percent.
“So I’ve decided, for the next six months, to cut VAT on food, accommodation and attractions.
“Eat-in or hot takeaway food from restaurants, cafes and pubs; accommodation in hotels, B&Bs, campsites and caravan sites; attractions like cinemas, theme parks and zoos; all these and more will see VAT reduced, from next Wednesday until January 12, from 20 percent to five percent.”
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The Government will pay the remaining 50 percent of the tab up to £10.
Everyone in the country gets a voucher and there’s no limit to the number of times you can use the discount.
The Eat Out to Help Out scheme combined with the VAT cut should save £4 billion for the hospitality and tourism sectors.
More than 150,000 businesses will be benefitted, and 2.4 million jobs could be saved.
James Shorthouse, Head of Alternative Markets at Colliers International, which includes hospitality and leisure, shared his thoughts on the VAT cut and voucher scheme.
He said: “The cut in VAT to 5 per cent until January is very welcome news for the leisure and hospitality sector and will be a clear boost for consumers, if the cut is passed on, increasing their spending power and encouraging them back into pubs, restaurants, hotels and tourist attractions.
“This, alongside the new Kick Start Scheme will provide much needed support and security for the millions of young people working in the hospitality sector.
“The introduction of the ‘Eat Out to Help Out’ scheme is a surprise development, and should certainly encourage people back into our restaurants and re-establish eating out as a normal part of daily life.”