Major UK coffee chains will pass temporary VAT cut to customers

A Costa Coffee store in Lewisham, London, UK. The UK's biggest coffee chain has said it will pass on a temporary VAT cut to customers | Photo: Costa Coffee 

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The temporary VAT reduction from 20% to 5% was first announced by UK Chancellor of the Exchequer Rushi Sunak on 9 July 2020 and forms part of government measures to support the UK’s beleaguered hospitality sector after months of coronavirus closures.
 
The £4bn VAT reduction comes into effect on 16 July 2020 and applies to food and non-alcoholic beverages purchased from cafés, bars and restaurants until 12 January 2021. The reduction does not apply to cold food purchased for takeaway, which is already zero-rated for VAT.
 
Sunak said the initiative was a “catalyst for the hospitality and tourism sectors, benefiting over 150,000 businesses, and consumers everywhere”. The UK government has said the changes could save households up £160 ($200) a year and safeguard more than 2.4 million jobs.
 
The UK’s biggest coffee chain, Costa Coffee has said it will pass on the coffee and food discount to customers, meaning the cost of a house filter coffee will be reduced from £1.00 to £0.88 ($1.11). Starbucks will also reduce the cost of its coffee, applying a £0.45 ($0.57) discount to beverages of all sizes. Both chains say the discount will be available at company-owned stores, but that franchise businesses can apply discounts with discretion.
 
UK food-focused market leader, Greggs, has said it will apply the discount to all of its coffee and hot food items from July 18 2020. Fellow food-to-go chain Pret A Manger applied its coffee discount on July 15 and will reduce the cost of hot food from July 17. Fast-food giant McDonald’s is also lowering the cost of its McCafé branded coffee, while pub chain Wetherspoons will reduce the cost of its Lavazza coffee to £1.29 ($1.62).
 
It remains to be seen whether independent cafés and smaller operators, already under significant financial pressure and who may view the temporary VAT cut as a lifeline, will be able to pass on the benefit to customers.
 
Other hospitality support measures announced by the UK government include the ‘Eat Out to Help Out’ scheme, which offers a 50% discount up to the cost of £10 per person for meals purchased at participating cafés, bars and restaurants during August 2020.