The hospitality sector has never been shy about making the economic case for VAT reform. But the latest campaign led by celebrity chef Tom Kerridge and backed by UKHospitality and other industry bodies, has arguably brought the issue into sharper public focus than ever before.
The campaign, “VAT is the Problem”, argues that reducing VAT for hospitality businesses would help lower prices, stimulate demand, protect jobs and support growth across the sector. It is a clear and compelling message, delivered in a way that is easy for both consumers and policymakers to understand.
And in many respects, the campaign reflects genuine pressures facing hospitality businesses today.
Why the campaign resonates
Across Europe, reduced VAT rates for hospitality are common. Several countries introduced temporary VAT cuts during and after COVID-19 as a stimulus measure for restaurants, hotels and tourism businesses. Compared with some of its European counterparts, the UK’s standard VAT rate can appear relatively high for a sector operating on tight margins and heavily exposed to rising operating costs.
The debate has become even more relevant following the Government’s recent decision to introduce a temporary 5% VAT rate on qualifying children’s meals between 25 June and 1 September 2026. The measure, introduced as part of the Government’s “Great British Summer Savings” initiative, is designed to support families with the cost of eating out while encouraging spending in the hospitality sector.
In many respects, the temporary relief serves as a live test of one of the campaign’s central arguments: that VAT can be used as a tool to stimulate demand, increase affordability and support hospitality businesses. If the measure succeeds in driving additional footfall and spending, supporters of wider VAT reform are likely to argue that it strengthens the case for a broader reduction across the sector.
The campaign also succeeds in creating a sense of collective action across the industry. Rather than positioning VAT as an isolated tax issue, it frames the challenge as one affecting the wider hospitality ecosystem, from independent restaurants and pubs to suppliers, employees and consumers. In an industry where confidence and sentiment matter, that united front is powerful.
The reality is more complicated
However, while the campaign is effective in highlighting the pressures facing the sector, the policy discussion itself is inevitably more complex.
One of the challenges with VAT reform is that it rarely exists in isolation. Any reduction in VAT would likely raise broader fiscal questions around how government revenues are replaced elsewhere. The debate therefore cannot be limited solely to VAT without considering wider tax trade-offs, whether through corporation tax, employer taxes or other forms of public revenue generation.
There is also the question of whether reduced VAT rates always translate into lower consumer prices. During the temporary hospitality VAT relief introduced in response to COVID-19, outcomes varied significantly across the sector. Some businesses passed savings on to customers, while others used the relief to absorb rising costs and stabilise margins during an exceptionally difficult trading environment. Given the scale and cost of those reliefs to the Treasury, policymakers may be cautious about introducing permanent changes without clear evidence of long-term economic return.
Will lower VAT really drive demand?
The campaign also assumes a level of consumer demand response that may not fully materialise in practice. The forthcoming temporary VAT reduction on children’s meals may provide an interesting indication of how consumers respond to lower prices in the current economic environment. While lower prices may encourage spending at the margins, hospitality businesses continue to operate against a backdrop of broader economic pressures affecting consumers, including energy costs, mortgage rates, inflation and general household spending constraints.
Equally, VAT is only one part of the cost equation for operators themselves. Labour costs, business rates, utilities, food inflation and supply chain pressures remain significant commercial challenges for the sector. A VAT reduction may provide some relief, but it is unlikely to solve the wider structural pressures hospitality businesses are currently managing.
The practical challenges of VAT reform
There are also important technical considerations around how any reduced rate regime would operate in the UK.
Unlike many European countries, the UK VAT system has historically favoured a relatively simple structure with one main standard rate alongside a limited number of reduced or zero-rated categories. Hospitality, however, is not always straightforward from a VAT perspective. Depending on the nature of the supply, businesses can already find themselves navigating multiple VAT treatments across food, accommodation, alcohol, entertainment and takeaway services.
If a reduced hospitality rate were introduced, questions would inevitably arise around scope and boundaries. What exactly qualifies as “hospitality”? Would the definition extend beyond restaurants and pubs? How would mixed supplies be treated? And where would HMRC draw the line between sectors that do and do not qualify for relief?
These are not arguments against reform. But they do underline why VAT policy in hospitality is rarely as simple as a single-rate debate.
What this means for hospitality businesses
The conversation nevertheless highlights something important: VAT remains one of the most commercially significant taxes affecting the sector. Whether businesses are managing complex partial exemption issues, reviewing pricing models, navigating mixed supplies or assessing operational structures, VAT considerations increasingly sit at the heart of commercial decision-making.
At HaysMac, our VAT specialists work closely with hospitality operators across restaurants, hotels, pubs, leisure and wider consumer-facing businesses to help them navigate an increasingly complex tax and regulatory environment. Our sector-focused approach means we understand not just the technical VAT rules, but the operational and commercial realities hospitality businesses are facing every day.
If you would like to discuss how VAT changes, pricing pressures or wider indirect tax issues could affect your business, please get in touch with our Hospitality VAT team.
