A temporary cut in VAT from 20% to 5% comes into force today allowing businesses in the food, drink and hospitality sectors to cut prices.
The reduction, which will last 6 months until 12 January 2021, is part of a package of measures to help firms recover and get consumers spending announced by Rishi Sunak recently.
Businesses though, do not need to pass on the reductions to customers and can choose to keep their prices the same. For some, with reduced footfall and customer numbers, they may have no choice to hold onto the VAT cut to help see them through the crisis.
The cut applies to food and non-alcoholic drinks as well as accommodation and admission to attractions across the UK, such as zoos and cinemas.
It will affect the following food purchases:
- Food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafés and pubs
- Hot takeaway food and hot takeaway non-alcoholic beverages
- Sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities.
Admissions to the following attractions will also be included in the VAT cut:
- Amusement parks
- Similar cultural events and facilities
McDonalds, Starbucks and Nandos are some of the big names which will pass price cuts on to customers. McDonalds has said it is recommending that franchisees pass on the VAT cut, but the price cuts may be different from location to location.
However, many smaller companies say they will not pass the price cuts on to customers, but will use the money saved to try and patch up their finances which have been seriously dented by the Covid-19 lockdown.
While many hotels, pubs, restaurants and cafes are operating at a reduced capacity due to social distancing rules, and say they cannot afford to pass the savings on.