Over 800 hospitality businesses want VAT cut to 10% — what a rate change means for your VAT return

My view: this is a campaign letter, and nothing changes at your till this week. The accounting work worth doing now is building the model while the number is still theoretical, so that if a cut does land in the Budget you're pricing and filing it correctly from day one, during the same weeks you're running a Christmas trading period.

What the letter asks for

The letter itself changes nothing in law. It asks Burnham to set out, ahead of Chancellor John Healey's Budget on 28 October 2026, a route to cutting VAT on hospitality supplies from 20% to 10%. It follows a pledge Burnham made in February, before he became Prime Minister, that he would "argue for a VAT rate more consistent with what you find in Europe" — a comparison the campaign leans on directly: France, Italy and Spain already tax hospitality at 10%, and Germany at 7%. UKHospitality's linked #VATsTheProblem petition has gathered more than 370,000 signatures, and the campaign's own figures put sector job losses at roughly 100,000 over the past two years , a figure from the industry.

Burnham has responded by saying the government needs to "go further" on hospitality, alongside an already-offered 20% business rates cut for pubs, clubs and live music venues, but he has stopped short of committing to a VAT change. The letter is a campaign ahead of the Budget, and nothing has been announced. The Treasury has previously put a number on the scale of what's being asked — minister Dan Tomlinson told a parliamentary committee that halving hospitality VAT would cost the Exchequer in the region of £11 billion a year, in the context of Northern Ireland's separate campaign for the same cut.

Which sales a cut would cover

No draft legislation exists, so no one can tell you the exact scope of a 2026 cut — but every UK hospitality VAT relief on record has followed the same shape, and it's worth knowing before you assume a blanket 10% across your whole till. The 2020–2022 temporary reduced rate, introduced during the pandemic and unwound in stages back to 20%, covered three things: food and non-alcoholic drink sold for consumption on the premises, hot takeaway food and drink, and holiday accommodation. It did not cover alcohol, which stayed at the standard rate throughout. If a 2026 cut is built the same way, a wet-led pub — much of Wetherspoon's and Greene King's turnover, for instance — sees a smaller proportional benefit than a food-led restaurant or a hotel, because the part of the till that moves is food, soft drinks and rooms. Model your own figures against food and soft drink turnover only.

Worked example: a 60-cover restaurant company

Illustrative, built on a simple two-line till split: food and non-alcoholic drink sold for consumption on the premises, and everything else (alcohol and any cold takeaway already outside scope).

Same turnover, same rate cut, two entirely different outcomes depending on one pricing decision — and most operators land somewhere between the two, cutting menu prices by less than the full VAT saving and keeping some of the margin. Either way, that decision needs making deliberately and communicating to guests before the effective date.

The transitional wrinkle sits in the gap between booking and delivery. Say the same restaurant takes a £2,400 deposit today, 14 September, for a 60-cover Christmas party in December — invoiced now, at 20%, so £400 of that deposit is VAT. If a cut is confirmed in the Budget with an effective date before the party, the normal tax point rule says the deposit invoice already fixed the rate at 20%, regardless of when the meal is served. Both the 2011 standard-rate rise and the 2020 hospitality relief carried a specific transitional election letting businesses re-rate supplies that straddle the change date, adjusted by a credit note headed "change of VAT rate" issued within 14 days. Until any 2026 change is actual law, there's nothing to adjust — but keep a list of deposits taken for dates that might fall after a future effective date.

The Flat Rate Scheme and partial exemption

If you're on the VAT Flat Rate Scheme, your published sector percentage — 12.5% for catering, 10.5% for hotel or accommodation, both set from 1 April 2022 — is calculated against the 20% standard rate. During the 2020–2022 relief, HMRC cut both sharply, to 4.5% and 0% at the lowest point, precisely because the old percentages would have overstated what FRS businesses owed once the standard rate no longer applied to most of their turnover. If a 2026 cut happens, treat your current percentage as provisional until HMRC publishes a replacement — filing on the old number after a confirmed cut means handing HMRC VAT you never actually charged.

Partial exemption is the one most restaurants, cafés and small hotels can genuinely ignore, because it only applies to a VAT-registered business that also makes exempt supplies — some gaming machine income, certain property lettings, or space hired out with no additional services. If none of that applies to you, every pound you take is standard-rated and there's no calculation to run. If some of it does apply, HMRC's de minimis test treats exempt input tax as fully recoverable only where it's both no more than £625 a month on average and no more than 50% of your total input tax for the period — fail either limb and none of it is recoverable. A rate cut changes the taxable turnover side of that sum, so if you're already close to that line, recheck it once any change is confirmed.

What to do this week, and what to leave until it's law

1. Now: model your own number. Pull last year's food-and-soft-drink turnover, exclude alcohol and any zero-rated cold takeaway, and run the "hold net price" and "hold gross price" versions of the table above against your own figures. That's the decision you'll actually need to make in a hurry if the Budget confirms a cut.
2. Now: flag advance bookings that cross a possible change date. Anything invoiced or deposited today for delivery in December or later is worth a one-line note, so you can find it fast if a transitional election is published.
3. Now: check your scheme. Know whether you're on standard VAT accounting or the Flat Rate Scheme, and whether any exempt income puts you near the partial exemption de minimis limit — so you know which of the two sections above actually applies to you.
4. Leave until it's law: till codes, menu reprints and guest-facing pricing. Nothing has passed Parliament, no date exists, and no scope has been confirmed. Changing prices or VAT codes on the strength of a lobbying letter risks doing it twice.

What is still uncertain

Whether it happens at all. Burnham has acknowledged pressure to "go further" without committing to VAT specifically, and the Treasury's own £11 billion costing for a straight halving is the kind of number that gets traded off against other Budget priorities rather than agreed on lobbying pressure alone.

What it would cover. No bill exists, so the food-and-soft-drink-only scope described above is based on precedent, and a different structure is entirely possible.

When it would start. Even a cut announced on 28 October could take effect immediately, from the following April, or on a staged timetable — all three have precedent in UK VAT history, and each has different transitional consequences for deposits already taken.

None of that changes what you owe today, which is VAT at 20% on everything you're currently charging it on. Our VAT returns service can model a rate change on your own figures alongside the quarterly return, next to the wider support we already give hospitality and food businesses on till VAT liability, payroll for a real rota and weekly gross margin. If you want us to run this against your own figures, book a call and we'll come back with your actual number.

Sources: City A.M., "Burnham told to deliver 10 per cent hospitality VAT after backing tax cut", published 14 September 2026; The Guardian, "Hospitality industry urges Andy Burnham to lay out VAT reduction plans", published 14 September 2026. Petition and job-loss figures as reported by UKHospitality's #VATsTheProblem campaign. Autumn Budget date and Flat Rate Scheme percentages as published by HM Treasury and HMRC. Figures correct at 14 September 2026.