Do I have to pass the VAT cut on to my customers?

VAT has been temporarily cut from 20% to 5% for hospitality and tourism businesses, and a number of big businesses including McDonald's and Nando's are cutting prices as a result. But businesses don't have to pass on the tax cut to customers.

VAT is a tax which is charged on many goods and services, although it's normally included in the price you see as a consumer. The standard rate of VAT in the UK is 20%, although some items are charged at a reduced rate of 5% (and some items, such as most supermarket food and newspapers, are exempt from VAT).

Until 12th January 2021, the VAT rate for hospitality and tourism businesses has been slashed from 20% to 5%, meaning restaurants, hotels and attractions will all have to pay less tax to the Government on their sales of certain items. The reduction, which is expected to cost the Government £4.1 billion in tax, is intended to boost the part of the economy hit hardest by Coronavirus.

But firms AREN'T obliged to pass on the VAT cut to customers by dropping their prices. The Treasury says that while it looks to businesses to pass on the benefit of the VAT drop to their customers if they can, it is for individual companies to decide their own prices – and many affected firms will have missed out on recent income due to being closed during lockdown.

Goods and services affected by the VAT cut

The reduced 5% VAT rate applies in the following areas:

• Food and non-alcoholic drinks which are sold to eat on the premises of places such as restaurants, cafés and pubs, as well as hot takeaway food and non-alcoholic drinks.

• Holiday sleeping accommodation, including hotels and pitch fees for caravans and tents.

• Admission to some attractions, such as theatres, zoos, amusement parks, cinemas, museums and more.

If you’re in hospitality sector and have any question regarding VAT, please call Ian on 01772 925230.

Alternatively, fill in the form on our Contact Us page, and we’ll get back to you.