CHANCELLOR Rishi Sunak announced VAT would remain at a reduced rate for certain businesses over the summer in March's budget.
But what is VAT in the UK and how does it work? Here is everything you need to know.
What is VAT?
VAT stands for value-added tax.
It is added to products and services and is levied at each stage of production.
VAT was first introduced in the UK in 1973, replacing the Purchase Tax.
It is the third-largest source of revenue for the government after income tax and National Insurance.
It is administered and collected by HM Revenue and Customs.
What is the current VAT rate?
The VAT rate in the UK is usually 20%, but during the Covid crisis, was slashed by Chancellor Rishi Sunak in July last year in his mini-budget.
The VAT rate was cut to 5 per cent for businesses in the hospitality and tourism industries.
This was in order to help the industry bounce back after taking a hammerblow due to the pandemic.
The tax cut was due to remain in place until January 12, 2021.
But during the 2021 Budget in March, Mr Sunak announced the lowered rate would be kept until September 30.
It will then increase to 12.5% until April 2022, when the standard 20% rate will return.
This means in total, the move will see VAT cut by almost £5bn.
What products and services have Value Added Tax on them?
Every good and service has VAT already included in the price.
Full list of businesses where VAT has been cut
The VAT rate will be slashed for the hospitality and tourism industries in order to help them bounce back from the coronavirus crisis.
- Restaurants, cafes and pubs
- Hotels, inns, boarding houses and similar establishments
- Holiday and caravan parks and other holiday accommodation businesses charging fees for tent pitches or camping facilities
- Amusement parks
- Similar cultural events and facilities
It is added to your restaurant bill, theatre tickets and hotel room.
Booze is excluded from the VAT cut, but it applies to food and non-alcoholic drinks from restaurants, pubs, bars, cafés and other similar premises across the UK.
It will also applies to accommodation and on admission to attractions.
We've rounded up the full list of businesses where VAT has been cut.
The VAT cut will remain in place over summer, as Brits rush to sip pints in pubs, dine out and stay in hotels.
Boozers have reported they are fully booked up until the end of summer, while flights to Portugal are soaring to six times their normal price as Brits race to beat quarantine.
Here's a list of other ways the 2021 Budget will affect your finances – we round up the winners and losers.
We work out which families will be richer or poorer following the Budget.
Plus, here's five tax changes that will impact your finances.
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