13% or 10%? The Two VAT Numbers Now on the Table

Published 16 October 2026

For months, the hospitality VAT campaign has had one number: 10%. Now, with the Budget twelve days away, there is another on the table.

UKHospitality is still pressing for a 10% rate. Chef and restaurateur Tommy Banks has proposed 13% for hospitality businesses with annual turnover below £50 million. For the first time, the movement is arguing with itself over the number, and that is a more useful conversation than another round of applause for a single rallying cry.

It exposes the real questions: who should benefit, what can the public purse afford, and how would a lower rate help the businesses under the most strain?

I have spent more than 30 years around kitchens, dining rooms, and bars. In that time, I have seen owners carry immense pressure while waiting for a policy change that may or may not arrive. The practical task is to understand the debate clearly, without mistaking a campaign for a decision.

First, the case for change is not imaginary

The numbers help explain why operators are pushing so hard. A BRC and Flint Global analysis estimates that hospitality paid the equivalent of 82p in business taxes for every £1 of pre-tax profit in 2025/26. That was the highest figure among the sectors examined, against an average of 50p. The analysis puts hospitality’s tax bill at £22.9 billion.

Those figures describe a sector-wide comparison, not the tax bill of every individual business, and certainly not a tax rate on each pound of customer spending. Still, it is a striking measure of how taxes on sales, property, employment, and profits add up against a relatively small pool of profit.

The same debate takes place on high streets where one in seven properties is empty. That vacancy rate is not proof that VAT alone caused closures. It is, however, part of the backdrop for a sector arguing that the cost of operating a venue has consequences beyond its own balance sheet.

J D Wetherspoon recently reported a 28% fall in profit before tax and separately disclosed items. The company pointed to VAT as part of the pressure, alongside substantial increases in wages, repairs, and business rates. It is a large operator, not a perfect proxy for a small restaurant, but the result illustrates the broader point: a venue can grow sales and still find less profit left at the end.

The #VATsTheProblem petition has passed 400,000 signatures and has been delivered to Downing Street. The Scottish Government has formally backed the campaign, while SNP pressure continues. The political energy is real. So is the question of how any proposed change would work.

The two proposals, plainly

UKHospitality’s campaign calls for hospitality VAT to fall from 20% to 10%. Tommy Banks’s proposal is a 13% rate for businesses with annual turnover below £50 million.

The distinction matters. The first is a sector-wide request; the second aims to target smaller businesses. The Treasury’s estimated annual cost of a 10% cut is £10 billion to £12.5 billion. Estimates for the narrower 13% proposal are around £3.2 billion to £3.6 billion a year. The totals depend on the scope and assumptions used, but neither proposal is cost-free.

That is the Treasury’s strongest objection, and it deserves a serious answer. A reduction on that scale means less revenue for the state, which must be funded through other taxes, lower spending, borrowing, or some combination. A campaign can point to jobs, prices, and high-street activity as possible benefits; it cannot simply assume those benefits will repay the entire cost.

There is also the problem of the VAT threshold. Around 45% of hospitality businesses are estimated to be below the £90,000 VAT-registration threshold. A reduced rate would not directly help those businesses while they remain unregistered. A turnover cap of £50 million does not solve that problem: it defines who qualifies for the 13% rate, not who is registered to charge VAT.

That is not an argument against reform. It is a reminder that a measure described as help for small businesses may leave many of the smallest outside its direct reach.

Six questions for the Budget debate

The old operator’s test is simple: put the important questions on the goalpost before celebrating the score. In this case, there are six.

Who benefits?

The 10% proposal applies broadly across hospitality, so larger groups as well as independent venues could benefit. The 13% proposal narrows eligibility by turnover, but the VAT-registration threshold still leaves a substantial number of smaller businesses without a direct saving.

What is being changed?

Is the proposal a lower VAT rate on qualifying hospitality sales, and which sales count? Any policy would need clear rules for food, drink, accommodation, and mixed businesses. Until those details exist, an owner cannot sensibly treat a headline rate as a settled operating assumption.

Why this rate?

Ten per cent would bring hospitality closer to the rate campaigners want to see; 13% is presented as a more limited compromise. But the exact figure needs to be defended in terms of impact, fairness, and cost, not merely because it sounds like a middle ground.

Where does it apply?

Hospitality is not one uniform business. A neighbourhood café, a hotel restaurant, a pub, and a multi-site group do not have the same cost structure or sales mix. A policy needs to say plainly which businesses and transactions qualify.

When would it take effect?

The Budget is on 28 October. Even if the Government announced a change, implementation would take time and require guidance. A promised rate is not the same as a rate in force.

How would it be funded and delivered?

This is where the debate becomes less comfortable. The Treasury cost estimate cannot be wished away, and the 45% below-threshold issue needs a direct response. A well-designed measure should set out both the funding case and the route by which the smallest operators might benefit.

What should you do with your prices now?

For now, plan around the current 20% rate. Do not build a menu, cash-flow forecast, or hiring decision around a Budget outcome that has not happened.

For a VAT-registered venue selling a qualifying item at £12 including VAT, the current net sale is £10, with £2 VAT. If the gross price stayed at £12 under a 13% rate, net sales would be about £10.62. At 10%, they would be about £10.91. Alternatively, if the business kept the same £10 net sale and passed the full reduction to the guest, the gross price would be £11.30 at 13%, or £11 at 10%.

Those are illustrations, not a promise of what an operator should charge. The right decision depends on costs, competition, demand, and whether any saving is retained, passed on, or shared. Menu decisions should be made from net sales, not the VAT-inclusive figure on the till report. Our earlier note on what a VAT cut could mean for menu prices sets out the same principle.

The practical steps are modest:

• Check that your current menu costs use net sales at 20% VAT.
• Model a lower-rate scenario separately, rather than blending it into your working budget.
• Decide in advance how you would use any genuine saving: prices, wages, debt, investment, or cash reserves.
• Ask your accountant how a change would apply to your specific business and sales mix.

This is general information, not tax advice. Your accountant can advise on your circumstances and any eventual rules.

The point is not to pick a side too early

The 10% campaign has made a clear case that hospitality is carrying a heavy burden. The 13% proposal has put a more targeted option into the discussion. The Treasury has a legitimate duty to explain how a large tax reduction would be paid for. And operators have good reason to ask whether a cut would reach the smallest businesses, rather than simply the most visible ones.

None of those points cancels out the others.

The Budget on 28 October will tell us whether the Government is prepared to act, and on what terms. Until then, keep your numbers grounded in the rate that exists, and treat any change as a scenario to prepare for, not revenue already earned.

At Atelier Sawyer, our Digitise support is one way we help independent operators get clearer, more usable information from their systems. But the wider principle is simpler: policy may change the conditions; sound decisions still begin with knowing your own numbers.