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VAT on tourism and hospitality services

The campaign for VAT relief to support tourism

There has been a long-running campaign by the tourism and hospitality sector for a lower rate of VAT to be set on services supplied to tourists. Proponents have argued that this would allow hotels, restaurants, pubs and visitor attractions to cut prices, boosting sales and employment in this sector, which in turn would generate growth in the wider economy.

The importance of EU VAT law prior to Brexit

European VAT law limits the discretion of any Member State to set lower VAT rates on individual goods and services. There has been dispensation for a lower rate on certain supplies associated with tourism: specifically, hotel accommodation, certain restaurant services, and some types of admission charge, including charges for entry to amusement parks. Several Member States have made use of this dispensation to charge lower rates of VAT – between 5% and 15% – on these supplies. However, in the past both Labour and Coalition governments took the position that a reduced rate would not be well-targeted nor cost-effective.

With the UK having left the EU, EU VAT law no longer represents an obstacle to setting VAT rates.

A temporary reduced rate as part of the Government’s response to Covid-19

In July 2020 the then Chancellor, Rishi Sunak, announced a series of initiatives to boost job creation in the context of the Covid-19 pandemic, including a temporary 5% VAT rate on most tourist and hospitality-related activities. Initially it was anticipated that the 5% rate would apply to supplies made between 15 July 2020 and 12 January 2021. Subsequently the government retained VAT relief for this sector for a further fourteen months – extending the 5% rate up to 30 September 2021, and then replacing it with a 12.5% rate until 31 March 2022. It is estimated that this VAT relief cost over £8 billion in total.

Recent calls for an extension of this VAT relief

Since the end of the temporary VAT relief in March 2022 there have been some calls for a reduced rate of VAT to be made permanent. However, ministers in successive governments have consistently opposed this, on the grounds of cost, and that any new tax relief should represent value for money for the taxpayer.

In answer to a PQ in April 2022 the then Financial Secretary to the Treasury, Lucy Frazer, opposed an extension of this relief on the grounds that, “it is appropriate that as restrictions are lifted and demand for goods and services in these sectors increases, the temporary tax reliefs are first reduced, and then removed, in order to rebuild and strengthen the public finances.” In a second written answer at this time the minister noted that requests for changes to the coverage of VAT “should be viewed in the context of over £50 billion of requests for relief from VAT received since the EU referendum. Such costs would have to be balanced by increased taxes elsewhere, increased borrowing, or reductions in Government spending.”

The current government has taken a similar position on this issue. In answer to a PQ in May 2025, the then Exchequer Secretary James Murray noted that exceptions to the standard rate of VAT “have always been limited and balanced against affordability considerations”, going on to state “the government has no current plans to change the VAT rate for the hospitality and tourism sector.” In answer to a PQ in February 2026 the Exchequer Secretary Dan Tomlinson noted that setting a 5% VAT rate on all accommodation and food and beverage services would cost the government £17 billion.

A temporary VAT relief for children’s meals, tickets and family attractions

In spring 2026 energy prices rose significantly following the outbreak of military conflict in the Middle East.  On 21 May 2026 the then Chancellor Rachel Reeves gave a statement to the House on the government’s economic response, and announced a new temporary 5% VAT rate on children’s meals, tickets and family attractions. The relief will apply from 25 June to 1 September 2026.

Further reading

The Library briefing Tourism: statistics and policy covers domestic and inbound tourism, their recovery following the pandemic, other challenges facing the sector, and government policy.