Would a VAT cut actually help small hospitality businesses?

The UK’s hospitality industry is showing clear signs of being in peril. As a quarter of businesses are losing money, and pubs close at an alarming rate, industry leaders are calling on the Government to slash VAT rates in half across the sector, from 20% to 10%. 

The rate reduction would bring the UK in line with other European countries, where average hospitality VAT sits around 12.8%. Campaigners argue it’s the biggest lifeline available to stop smaller venues being taxed out of existence. 

However, not everyone believes a cut would deliver on its promise. Critics counter it’s an expensive, poorly targeted fix that mostly benefits large chains, while ignoring smaller businesses that need it the most. 

So, the question that’s dividing the sector is: would a VAT actually help the small businesses it’s designed to protect, or are businesses looking in the wrong place for relief?

How a VAT cut could ease the pressure on small pubs and restaurants

Pubs and restaurants across the UK are navigating difficult waters. Recent data reveals that a quarter of hospitality businesses are losing money, while an average of two pubs have shut up shop since the start of 2026. 

This erosion in profitability can largely be attributed to a heady mix of rising energy costs, competition from high street retailers, and rising national insurance (NI) contributions. Yet, industry leaders argue that cripplingly high VAT rates are currently the main thorn in the side of the sector. 

Celebrity chef and pub owner Tom Kerridge believes that cutting VAT rates down to 10% would prevent hundreds of pubs from closing by freeing up cash for wages, hiring, repairs, and investment. His #VATstheproblem campaign calls on the government to halve VAT for hospitality businesses, and has already received backing from UKHospitality and almost 250,000 members of the public. 

The UK’s VAT rate of 20% towers above other European countries, with most of our continental neighbours charging closer to 10%, and the EU average sitting around 12.8%.

Kerridge argues bringing the rate in line with the rest of Europe would “reduce the cost pressures facing our sector” and “mean more venues are able to stay open”, and provide jobs to workers that need them, as well as valuable hubs for their local communities.

Many pub owners agree, with Roland Birks, owner of The Ship Centurion in Whitstable, telling Kent Online, “Some countries actually pay 5% VAT in Europe, so considering it’s 20% here, then halving it would make a massive difference.” 

Why a VAT cut doesn’t go far enough for many businesses

Despite widespread public support for Kerridge’s campaign, opinion on the topic remains split. 

Independent tax thinktank the Tax Policy Associates argue the VAT slash would overwhelmingly favour large chains, with founder Dan Neidle estimating that McDonald’s alone stands to gain £432m from the cut to 10%, and the pub group Mitchells & Butlers pocketing a further £246m. 

The core issue remains that many of the smallest, most vulnerable hospitality businesses don’t pay any VAT at all. Specifically, firms with turnover below £90,000 –  which represent roughly 45% of the hospitality industry – fall under the registration threshold, meaning that lots of independent businesses like cafes and micro pubs wouldn’t see any benefit from the rate cut whatsoever. 

Neidle also argues the VAT cut would be a very expensive tool. The Treasury estimates the cut would cost the public purse £10.5bn, and the TPA puts the true figure closer to £12bn – a significant burden which would ultimately be shouldered by taxpayers.

In light of these considerations, what else could be done to take some financial pressure off smaller hospitality venues?

Beyond VAT, what else could be done to help small hospitality businesses?

Instead of a blanket cut to VAT, many experts believe small, struggling hospitality firms would benefit from more targeted measures. 

For example, the industry has been calling for a further softening of business rates. While the Government’s £4.3bn support package has capped bill increases for the majority of hospitality venues at 15% or less, campaigners argue that relief slows down the damage rather than reversing it, warning that the rates could still “kill off the high street” if they continue as they are.

Others point to the rise in NI contributions, which has hit high-headcount hospitality businesses especially hard given how many staff they employ. Reversing this increase could help to ease pressure more directly than a VAT cut, as it targets a cost that hits every hospitality firm regardless of their size or turnover. 

Lastly, instead of a rigid VAT threshold which excludes a lot of smaller venues, the sector is lobbying for a sliding scale that gradually phases VAT in as turnover increases. This could take the financial burden off smaller, independent businesses, helping them to grow without a sudden cliff-edge tax bill the moment they own over £90,000 per year.