The Rationale
Why this is proportionate & effective?
This targets the real pain point — reduces the input cost pressure caused by VAT on
prepared food without changing the headline VAT rate or complicating VAT neutrality
rules for other sectors. (This is a focused input–side relief measure rather than a
blanket VAT cut.)
Precedents exist — the government has used temporary hospitality VAT reliefs
(reduced VAT rates for hospitality in 2020–22) to support the sector in shock
conditions. A targeted credit is administratively feasible and politically familiar.
Protects jobs & supply chain — hospitality is a major employer and a buyer of
domestic food supply; stabilising operator margins protects employment and
downstream suppliers.
Simple to calculate & administer — based on supplier invoices; HMRC can allow a
restricted input-tax credit line on VAT returns for qualifying purchases with standard
recordkeeping (invoices, supplier codes). This avoids rewriting the standard VAT
product classifications.
Implementation Details
Eligibility
Verification & Safeguard
Eligibility
VAT-registered hospitality businesses (cafés, restaurants, pubs, hotels,
catering businesses) that primarily supply prepared food and drink to the public.
Registration threshold rules unchanged.
Claiming
Verification & Safeguard
Eligibility
On the VAT return (VAT100), add a new box for “10% food-cost credit” — equal to 10% of the sum of net qualifying food purchase invoices for the period. The credit reduces VAT due.
Verification & Safeguard
Verification & Safeguard
Verification & Safeguard
Qualifying purchases must be supported by supplier invoices and a simple cost-centre code on returns. HMRC can audit and publish guidance; limit the credit to avoid double-counting (e.g., exclude purchases where input VAT already reclaimed).
Economic & Fiscal Benefits
Protects employment and reduces business failures in a labour-intensive sector — fewer redundancies reduce welfare and retraining costs and preserve VAT/Income Tax receipts.
Supports domestic supply chains (wholesalers, farmers, logistics) by stabilising demand for food inputs.
Targets relief where it matters — unlike a headline VAT cut, this does not forego VAT revenue across the whole economy nor distort non-hospitality sectors.