Crowe comments on the campaign for reduced VAT on served food

Ahead of Tax Equality Day this Thursday, Crowe comments on the merits of reducing VAT for the hospitality industry and the government in its next Budget.

Rob Janering, Partner, VAT and Customs Duty services, said:

“The hospitality sector's campaign to reduce VAT on served food seems no more than a ‘sticking plaster’ for businesses who's bottom line has been severely impacted by the cost-of-living crisis, pandemic and the UK’s post-Brexit immigration rules and the sector's calls are unlikely to be heeded by the Chancellor in October’s budget.

“If the Government applied a VAT reduction to supplies of catering it would bring the UK into line with many EU countries who have reduced the rate for the hospitality businesses. These lower rates nearly always apply to supplies of catering but in some cases are limited to servings of hot/cold food and not alcoholic drinks.

“While we have no doubt that the hospitality industry would welcome a reduced rate of VAT, it is well documented that when rates have been reduced on other products, such as tampons or Jaffa Cakes, the consumer rarely sees the price reduction. Instead, suppliers have maintained existing prices and pocketed the additional margin. However, if increasing profit margins for the hospitality sector means restaurants, bars and other establishments continue to operate then the side benefits, such as employment and vibrant town centres, may outweigh the lack of a price reduction.

“We would ask that to support any changes there is increased transparency around the benefits or trade-offs, especially as the Chancellor has a £22bn hole to fill. Whether a reduction happens or not will largely depend on the wider approach to the economy and how adventurous and brave the Government feels.”