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Reduced VAT for hospitality

Will businesses actually reduce their prices during the 5% VAT period?

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Hospitality clients are likely to ask whether they should reduce the price of meals and non-alcoholic drinks to reflect the reduction in VAT rate announced today. I wonder how many businesses will charge the same menu price as before on the basis that the whole point of the reduction is to help the business not the customer. Many businesses are running at capacity which is far less than before Covid due to social distancing requirements so reduced prices cannot possibly result in attracting more customers. What would you advise?

Replies (19)

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By Southwestbeancounter
08th Jul 2020 17:50

Good question John; I was wondering exactly the same thing especially as a coffee shop I know has just spent a small fortune on getting new menus printed etc

I would anticipate that prices will stay the same and the coffee shops etc would gain via the VAT advantage and then, like you say, it benefits those it is intended to.

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By the_drookit_dug
08th Jul 2020 17:55

Default assumption must surely be no.

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Flag of the Soviet Union
By thevaliant
08th Jul 2020 17:56

I can't see any change in prices for the end user. The shops will just keep the difference. A £3.25 coffee will still be £3.25 to you and I.

I had a Subway client once. £3.50 for a sub. Toasted it was still £3.50 but should've been £2.87 (or whatever) plus VAT. Not toasted was also £3.50... all to the store owner.

Surprisingly, almost everyone ordered food in a Subway non-toasted. It surprised me, and it certainly surprised the VAT inspector too.......

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Replying to thevaliant:
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By Bobbo
09th Jul 2020 12:55

I didn't realise there was a single person in the world that didn't have their Subway toasted!

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Psycho
By Wilson Philips
08th Jul 2020 17:58

If the demand is there, absolutely no point in reducing prices. On the other hand ...

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Replying to Wilson Philips:
d
By puzzel
08th Jul 2020 19:01

you had that bug,or just kept spumed for a while.

Having spoken to someone earlier today, they will not cut their prices.

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By Paul Crowley
08th Jul 2020 18:02

The point was to help the business, not make eating out cheaper.

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By ireallyshouldknowthisbut
08th Jul 2020 18:24

Price is about what the consumer will pay.

Not what it cost might be to deliver the service.

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By Paul Crowley
08th Jul 2020 18:28

Why the Flip could he not just give them money?
Loads more wasted time for all concerned to get mere crumbs.

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Replying to Paul Crowley:
Hallerud at Easter
By DJKL
09th Jul 2020 10:51

Giving them money means HMG needs to target who qualifies, an application process from likely business entities and all the admin for HMG such a process involves etc, a vat reduction is instead just operated by the business entities and all HMG needs to do is post event review it was properly applied- in effect all on here who are in practice are now working more for the Man (probably effectively unpaid)

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blue sheep
By NH
08th Jul 2020 20:03

The intention is to reduce prices and therefore increase demand, experience where this has been done in other countries is that prices remain the same and the business pockets the difference

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Replying to NH:
Psycho
By Wilson Philips
08th Jul 2020 20:29

But if businesses are forced to operate at under-capacity, demand may not be an issue. As I hinted at, time will tell whether keeping prices up deters customers.

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Replying to NH:
RLI
By lionofludesch
09th Jul 2020 09:58

NH wrote:

The intention is to reduce prices and therefore increase demand, experience where this has been done in other countries is that prices remain the same and the business pockets the difference

I've often said that VAT is a tax on the retailer, not the consumer.

In this instance, I don't really mind. To me, it'll be a few pence, couple of quid at most, and I think hospitality needs a bit of a boost at the moment.

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By johnt27
08th Jul 2020 21:53

Would I recommend my clients reduce their prices accordingly - probably not. Will some choose to do so - maybe.

As others have said, the evidence from other countries where this has been done is that prices may drop marginally or not at all. Although it should be noted that no country has applied such an industry specific VAT reduction and price reductions noticed in other countries tended to be the effect of big ticket items being reduced as they're more noticeable to the consumer but have a lower impact on tax take/overall prices due to volume.

The pressure will be on the big boys (and girls) of the sector to reduce prices to avoid being splashed all over the front page of the daily mail as corporate charlatans squeezing every last drop from their customers.

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Replying to johnt27:
blue sheep
By NH
09th Jul 2020 05:32

johnt27 wrote:

As others have said, the evidence from other countries where this has been done is that prices may drop marginally or not at all. Although it should be noted that no country has applied such an industry specific VAT reduction .


Yes they have, they tried it in France a few years ago to stimulate the hospitality industry (the Sarkozy days), hardly any prices changed so a couple of years later they increased the rate again
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Replying to johnt27:
Hallerud at Easter
By DJKL
09th Jul 2020 10:24

The vat and pricing is really an economic red herring, if demand was such that prices needed to drop to get to optimum pricing to maximise profit then they just should have been dropped, vat reduction or no vat reduction, the only difference vat at 5% or 20% makes to this is calculating the net of vat price for said optimum pricing calculation. (A £3.00 gross being £2.50 and now £2.86)

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By Paul Crowley
09th Jul 2020 10:01

Unbelievable
Spoke to a director of a currently no income business late yesterday
She was adamant that she would not eat out anywhere that does not pass down VAT savings.
My guess is that she will not be eating out for quite a while

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By Nebs
13th Jul 2020 10:52

There must be many small businesses where the first consideration after 3 months of no income should be "Can, and should, we cancel our VAT registration".

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By Homeworker
13th Jul 2020 16:49

I can't see many businesses being able to afford to pass on the whole of the VAT reduction but it may enable them to offer incentives, vouchers etc to drum up more business, helping themselves and the customers.

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