Government cuts VAT on catering & takeaway foods to 5%

Chancellor Rishi Sunak has announced measures to push the public to ‘Eat Out to Help Out’ cafes, bars and restaurants, including 50% meal discounts and cuts to VAT.

From 15 July the VAT on hospitality sector food and non-alcoholic drinks sales will fall from 20% to 5% until 12 January 2021. The treasury expects the cut to result in a £4.1b saving for consumers – approximately £160 per person.

The move does not change the VAT charged on non-essential convenience goods such as crisps and confectionery, which remains at 20%.

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However, hot food to go offerings sold in convenience stores may be included, falling under the same VAT notice code (709/1) as restaurants and cafes. The ‘Plan for Jobs’ report announcing the change said: “Further guidance on the scope of this relief will be published by HMRC in the coming days.”

The hospitality sector will also benefit from a 50% discount on eat-in meals purchased between Monday and Wednesday in August, capped at £10 discount per head. Restaurants, pubs and cafes will be reimbursed for the cost of the discount. The ‘Eat Out to Help Out’ scheme is forecast to cost the treasury an additional £0.5b.

The summer statement by Sunak also revealed measures to protect employment levels as existing furlough schemes are wound down. Convenience stores and all other businesses will receive £1,000 in February for every furloughed employee earning above £520 per month still employed in January 2021.

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Store owners hiring 16-24 year old Universal Credit recipients deemed ‘at risk’ of long term unemployment will have 100% of their wages, national insurance and employer minimum automatic enrolment contributions covered for up to 25 hours labour per week.

Retailers and other businesses that take on new apprentices will receive a £2,000 payment for under 25 year olds (on top of the existing £1,000 payment for 16-18 year olds) and £1,500 for those aged 25 or more.

Rishi Sunak said: “Our plan has a clear goal: to protect, support and create jobs. It will give businesses the confidence to retail and hire.”

However, Labour warned greater flexibility around the ending of furlough support would be needed for businesses affected by local lockdowns.

Find out more on our coronavirus information hub for retailers