Good news for the hospitality sector: VAT to be cut to 5% until January 2021

Close up of waiter serving two plates of fine food

Throughout the pandemic, Chancellor of the Exchequer, Rishi Sunak, has been outlining plans for UK businesses with the aim of getting the economy back on track. From the unprecedented Furlough Scheme to Eat Out to Help Out, many of these plans have been crucial in helping businesses stay afloat and provide some much needed positivity and hope for many UK business owners and employees.

As the economy continues to feel the impact of the coronavirus (COVID-19) pandemic, Chancellor Rishi Sunak used his Summer Economic Update to support businesses and help individuals get back into work.

This week’s welcome update saw Sunak announce that in the hospitality sector, VAT will be reduced from 20% to 5% for 6 months, (15th July 2020 – 12th January 2021). This reduction is aiming to support the hospitality sector who have been hit incredibly hard during the pandemic and encourage the public to support local businesses.

Who is eligible?

Businesses within the hospitality and tourism sector (including pubs, bars, restaurants, hotels, B&Bs, and entertainment attractions) are eligible for the VAT rate cut. The hospitality sector in particular consists of 127,000 businesses that employs over 2.9 million people in the UK.

What is Sage doing to help?

Throughout the pandemic Sage and their partner businesses have been providing ongoing support. Sage has created a dedicated corona hub for businesses with questions to keep up with the news that affects them.

Sage have put together some useful information to help their clients make light of the new legislation, and guide them through making changes within their Sage accounting system. Along with this is access to training courses and demos that will guide you throughout the VAT and coronavirus changes, found at Sage University.

This in-depth collateral provides a step-by-step break down of what clients need to do within their system, a live question and answer hub, top trending questions and government guidance.

What does this mean for your business?

Currently, VAT is charged at a standard rate of 20% and this applies to the goods and services those businesses provide. With this promise from the government, the hospitality sector, such as restaurants, cafés, hotels, B&Bs, campsites, cinemas and theme parks, will benefit from the lower VAT rate of 5%.

The expectation is that businesses will reduce their prices, encouraging consumers to spend more.

What does the VAT cut cover?

The cut is applicable for accommodation, admission to entertainment attractions and food. Although the temporary lower rate applies to non-alcoholic drinks, it does not apply to alcoholic drinks that will continue to be liable to the 20% rate.

How can we help?

At Solutions, our talented team will guide and support your business through the pandemic, ensuring you have the tools you need to keep your business productive. If you have any questions about the recent changes do not hesitate to get in contact with our team, email us at or call us on 0115 840 5075.