Despite significant backing of chef Tom Kerridge’s ‘VAT’s The Problem’ campaign, calling on the UK Government to reduce VAT for hospitality businesses from 20% to 10%, VAT in the UK hospitality industry remains at 20%.
The UK has one of the highest rates of VAT on hospitality in Europe. Many European countries recognise that eating out is an important part of everyday life and support the sector through reduced rates on food and hospitality services.
It's a complex issue that can be difficult to explain to customers, employees and the wider community, so we sat down with Catch 22’s co-owner and head chef, Neil, to hear more about the challenges facing the UK hospitality sector, what needs to change and how you can help.
Why is VAT the problem?
Customers see the price of a meal and understandably make their own judgements about whether it's good value. What they don't necessarily see is how much of that money goes straight back out in VAT, wages, National Insurance, energy, ingredients and other operating costs.
There is a fundamental issue with VAT in a labour-intensive business like ours. We can reclaim VAT on many of the goods and services we purchase, but we cannot reclaim VAT on wages or employer National Insurance contributions. A significant proportion of our expenditure is on people, so a 20% VAT rate has a particularly substantial impact on the economics of running a restaurant.
We're absolutely on board with the principle that staff should be paid fairly. But when wages rise alongside employer National Insurance contributions, energy costs, ingredients and other inflationary pressures, the numbers become increasingly difficult to balance.
We want to keep our menu prices accessible, pay our staff properly and maintain the quality of the food and experience we provide. But those objectives become harder to achieve when costs continue to rise. We cannot simply keep absorbing increases indefinitely, and passing every increase on to customers risks making eating out unaffordable for more people.
What are the consequences?
If independent restaurants and other hospitality businesses disappear, the consequences extend far beyond the businesses themselves. It affects local jobs, suppliers, tourism and, ultimately, the character and vitality of the communities we live in.
Restaurants are about far more than food. People come to us to celebrate, to spend time with family, to catch up with friends and simply to enjoy themselves. We try to create an environment that feels like a home away from home. At Catch 22, our events bring people of different ages and backgrounds together to enjoy local food and experience what Anglesey has to offer. We're somewhere that local people return to throughout the year, while tourists actively seek us out when visiting the island.
We employ between 30 and 40 people, depending on the season. Those are real jobs, providing income and opportunities for people in our local community. We also support local suppliers and contribute to the wider visitor economy. When people come to Anglesey for a holiday, their spending doesn't stop at their accommodation. They eat out, visit attractions and spend money in local businesses.
How would a reduction in VAT from 20% to 10% benefit Catch 22?
A reduction would give us meaningful breathing room. It would improve our cash flow and profitability, allowing us to build a stronger financial buffer, invest in our team and premises, and make decisions based on what's best for the long-term future of the business rather than constantly reacting to the next increase in costs.
It could also allow us to invest more in the things that make Catch 22 distinctive, whether that's developing our menu, hosting more events, improving the customer experience or supporting local suppliers. The important point is that a VAT reduction wouldn't suddenly make all our problems disappear. But it would give us more control over our future and allow us to make better decisions about where the business goes next. It would also help us manage the seasonal nature of operating on Anglesey. We have busy periods when tourism is strong, but we still need to maintain a business capable of supporting our team and covering our costs during quieter months.
How would Catch 22’s customers benefit?
I'd want to retain the benefit initially, for around 12 months, to help rebuild that financial security. That's not about increasing profits for the sake of it. It's about making sure we can weather quieter periods, protect jobs and continue investing in the business. After that initial period, our intention would be to pass some of those savings on to customers through lower menu prices. A VAT reduction should ultimately benefit the people who support us, not simply disappear into the finances of the business.
I'd also hope that a stronger financial position would allow us to keep future price increases down. Sometimes the benefit isn't necessarily a dramatic reduction in the price of every dish; it can be avoiding the increases that would otherwise have been necessary.
What should the future look like for UK hospitality VAT?
Having looked more closely at VAT systems across Europe, I think there's a strong argument for the UK to consider a differentiated approach to food and alcohol. Many European countries apply reduced VAT rates to restaurant food while retaining higher rates for alcohol. I think this is worth serious consideration in the UK. It could provide some flexibility for the Treasury while recognising that food and eating out play a different role in people's everyday lives.
I'm not suggesting that hospitality shouldn't contribute tax revenue. Of course it should. But the system needs to recognise the realities of the sector and the wider benefits it brings to communities, employment and tourism. Ultimately, we want to run successful businesses, employ people, support our local communities and give customers experiences they value. We're not asking the Government for handouts. We're asking for a fairer tax environment that gives us a better chance of succeeding.
A reduction in hospitality VAT would be an investment in an industry that employs millions of people and helps make towns, villages and tourist destinations worth visiting. The question isn't simply how much tax the Treasury collects from a restaurant meal today; it's also what kind of hospitality industry we want to have in the UK tomorrow.
How can customers help?
Tom Kerridge has a significant public profile, and he's been willing to put his head above the parapet on an issue that affects businesses of all sizes with his ‘VAT’s The Problem’ campaign. That matters.
The campaign gives independent operators like us a voice that we might otherwise struggle to achieve individually, and it's encouraging to see so many people across the industry coming together behind a common cause.
Catch 22 customers can support by signing the petition to cut VAT to 10% for hospitality – and spreading the word to their friends, family and colleagues to do the same: VAT's the problem
The longer-term risk is that businesses stop investing, reduce their ambitions, cut jobs or ultimately close. Even businesses that appear successful from the outside can be operating on relatively tight margins. It's not just about whether we can keep the doors open today; it's about whether we can continue to build a business that is sustainable for the next ten or twenty years.
