According to Rishi Sunak, the reduced VAT rates will be in place for 6 months. The measure will take effect on the 15th July 2020 and run until 12th January 2021.
Similar to recent efforts by countries such as Germany, this cut to VAT rates aims to kick-start the UK’s economy. As mentioned by the Chancellor, household consumption has fallen considerably in the last 2 months. This has resulted in a 25% contraction of the economy. Measures like those announced today are being introduced as part of plans to fight the economic effect of the Covid-19 pandemic and protect jobs in these sectors.
The VAT rate cut will therefore apply to the catering, accommodation, and tourism sectors. Businesses such as pubs, cinemas, hotels and zoos will be able to benefit from these reduced VAT rates.
In addition to the cuts to VAT rates, the Chancellor has also announced a stamp duty holiday on homes worth up to GBP 500,000 with immediate effect.