How 5% VAT on hotels and meals out will cut £300 off one-week family staycation

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BRITS could save £300 on a one-week staycation as VAT for the hospitality industry has been slashed by 15 per cent as part of today’s mini-Budget.

The Chancellor Rishi Sunak announced VAT will drop to 5 per cent for hotels, restaurants and attractions such as cinemas and theme parks.

Here’s what you need to know.

VAT (value added tax) will be cut from 20 per cent to 5 per cent for businesses in the hospitality and tourism industry, chancellor Rishi Sunak has today revealed.

VAT is a tax paid by businesses to HMRC on the items or services they sell.

It’s typically passed on to consumers in the price they pay for these goods and services.

The tax cut will take force next Wednesday (July 15) and will remain in place until January 12, 2021.

Booze is excluded from the VAT cut, but it will apply to food and non-alcoholic drinks from restaurants, pubs, bars, cafés and other similar premises across the UK.

It will also apply to accommodation and on admission to attractions.  

Mr Sunak said: “VAT on hospitality and tourism is charged at 20 per cent. 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 per cent to 5 per cent.”

The Treasury says the VAT reduction is expected to save households around £160 a year on average and it’ll mean price cuts of 12.5 per cent if businesses pass it on in full.

But some could save hundreds more if they’re planning a big family holiday in the UK.

For example, a family of four on a six-night trip to Cornwall would pay £2,387 now for bed and breakfast, and for lunch and evening meals with soft drinks.

But they could save £298.37 and bring costs down to £2,088.63 if VAT cuts are passed on in full – this of course assumes current prices already include VAT at 20 per cent.

See the table below for more examples. It’s worth bearing in mind that we haven’t included any potential savings from the 50 per cent off meal deal vouchers also announced today – so you may save even more on top.

Antje Forbrich, VAT director at accountancy firm Blick Rothenberg, said: “The VAT rate cut from 20 per cent to 5 per cent on food, accommodation and attractions is welcome news for the hospitality industry and, if passed on to the consumers in full, will amount to a 12.5 per cent reduction in retail prices.

“This should encourage spending in that sector and support the UK’s rural and coastal holiday regions. But consumers should hold off making any payments for deposits or tickets to attractions until next Wednesday.”  

Retailers and service providers don’t have to pass on VAT to customers and can instead choose to foot the bill themselves.

At the other end of the scale, this means they can also choose not to pass on today’s VAT savings in full to customers in the form of cheaper prices, but it’s hoped they’ll do so.

Genevieve Morris, head of corporate tax  at Blick Rothenberg said: “It’s now a case of watch and see whether it is the consumer that benefits of the businesses themselves.  

“The indication from the chancellor’s statement is that he expects this to reduce prices and encourage spending, but many businesses that have huge losses over the past few months may use this to boost profits, by keeping headline consumer prices the same, and pocketing the VAT saving – and who can blame them if they did?”

It’s worth pointing out that some items are already VAT-free, such as books and children’s clothes and footwear.

The government hopes cutting VAT will encourage people to take staycations in the UK and to spend cash on meals out and trips to the pub, which in turn will boost the economy and may mean struggling hospitality sectors can start taking back staff.

Mr Sunak has also today revealed that restaurant and pub meals will be slashed in half from Monday to Wednesday during August.

The chancellor says these combined measures will create a £4billion saving for the hospitality and tourism sectors that will benefit over 150,000 businesses, as well as helping to protect 2.4 million jobs.

These industries have struggled during lockdown with pubs, restaurants and cafes only allowed to reopen on July 4 in England.

In Northern Ireland, these establishments were allowed to open from July 3, while in Scotland, beer gardens could reopen from July 6 and indoor restaurants can go back to business from July 15.

Pubs and restaurants in Wales are due to reopen from July 13.

They have, however, been allowed to stay open for takeaway orders throughout lockdown.

The VAT measures come as part of Mr Sunak’s mini-Budget today which revealed a huge package to help boost jobs, particularly for younger workers with the launch of a “Kickstart” employment scheme for 16- to 24-year-olds.

The government will also dish out a £1,000 bonus for employers taking furloughed workers back on.

In addition, a stamp duty holiday has been launched in England and Northern Ireland covering the first £500,000 of a property’s value.

It takes force immediately and will last until March 31.

And vouchers worth up to £5,000 each will be available to homeowners to spend on making their property more energy efficient.

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