Budget 2026: What Could It Mean for Hospitality Businesses?
Hospitality businesses are facing continued cost pressures ahead of the 2026 Budget, with calls for changes to VAT, business rates and employer National Insurance. Here’s what hospitality businesses should be watching for.
The hospitality sector is calling on the Government to use the 2026 Budget on 28 October to address the tax and cost pressures affecting pubs, restaurants, hotels, cafés and other hospitality businesses.
The trade organisation, UKHospitality, has set out a four-point plan covering VAT, business rates, employer National Insurance contributions and tourism taxation. The proposals are intended to reduce costs and give businesses more scope to invest and employ staff.
For hospitality business owners, the important question is what changes, if any, will actually be announced in the Budget and how they could affect cash flow, staffing costs and profitability.
UKHospitality's proposals focus on four areas:
Area | UKHospitality proposal | Potential business impact |
VAT | Reduce hospitality VAT to 10% | Could reduce the VAT burden and create additional margin |
Business rates | Increase support following the 2026 revaluation | Could reduce property-related costs for some businesses |
Employer NICs | Increase the secondary threshold to £10,000 by April 2029 | Could reduce employment costs, particularly for lower-paid and part-time staff |
Tourism taxation | Replace the proposed holiday tax with a tourism bonus | Could change how tourism-related investment is funded |
These are industry proposals rather than announced Government policy. Any changes would need to be confirmed through the Budget and subsequent legislation.
Could hospitality VAT be reduced?
One of the main demands is a reduction in VAT for hospitality businesses from the current 20% standard rate to 10%.
At present, the standard VAT rate is 20%. The Government's published 2026/27 rates confirm that the standard rate remains unchanged at 20%.
UKHospitality argues that a lower hospitality VAT rate would give businesses more financial headroom and could support investment, employment and pricing.
The proposal has also received wider support within the hospitality sector. A July 2026 survey involving UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping and Hospitality Ulster found that 89% of respondents supported a reduction in hospitality VAT. The same survey found that 23% of respondents were operating at a loss and 16% believed their business was at risk of failure within the following 12 months.
Tom Kerridge said:
“It’s clear that the Prime Minister understands the importance of hospitality, and I was really encouraged to hear him make the case earlier this year for a lower rate of VAT for our sector.
“The reality is that 20% VAT is holding hospitality back. Hospitality is different from many other businesses because so much of what we spend our money on is our teams. You can reclaim VAT on a product, but you can’t reclaim VAT on a person. That makes a 20% rate particularly tough for a sector where labour is one of our biggest costs.
However, a VAT reduction remains a proposal at this stage, rather than a confirmed Budget measure.
Business rates remain a key concern
Business rates are another major issue for hospitality businesses following the 2026 revaluation.
From 1 April 2026, England introduced new retail, hospitality and leisure multipliers. For eligible properties, the 2026/27 multiplier is 38.2p for properties with a rateable value below £51,000 and 43p for properties between £51,000 and £499,999. Properties with a rateable value of £500,000 or more use the 50.8p high-value multiplier.
The previous Retail, Hospitality and Leisure relief scheme has also been replaced by the new multiplier system from April 2026. Some businesses affected by the revaluation may qualify for Supporting Small Business Relief.
UKHospitality is calling for further support, including increased relief for hospitality properties and changes affecting higher-value properties.
There is also a separate Government review of how business rates are calculated for pubs and hotels in England and Wales. The review is expected to report by March 2027, although it will not change the 2026 revaluation.
What about employer National Insurance?
Staffing is another significant cost for hospitality businesses, particularly those employing large numbers of part-time or lower-paid workers.
UKHospitality is calling for the employer National Insurance Secondary Threshold to increase to £10,000 by April 2029.
The organisation argues that this would reduce the additional employment cost associated with lower-paid, part-time and flexible workers.
For employers, any change to the threshold could affect the cost of employing staff and therefore needs to be considered alongside wages, pension contributions and other employment costs.
What should hospitality businesses do now?
With the Budget still ahead, businesses should avoid making financial decisions based on proposed tax changes that have not yet been confirmed.
Instead, hospitality businesses should:
1. Review current cash flow
Understand how much cash the business generates each month and identify periods where cash flow is under pressure.
2. Review staffing costs
Look at payroll, employer NICs, pension contributions, overtime and staffing levels. This will make it easier to assess the impact of any changes announced in the Budget.
3. Check your business rates position
Review your current rateable value, multiplier and any relief being applied to your property.
4. Understand your VAT position
Make sure your VAT accounting is correct and that you understand which sales are standard-rated, zero-rated or otherwise subject to different VAT treatment.
The Budget could be important for hospitality businesses
The hospitality sector is entering the Budget with significant pressure on costs and profitability.
UKHospitality's proposals focus on reducing the tax burden on businesses, while recent industry research highlights concerns around business viability, employment costs and investment.
The 28 October 2026 Budget should provide greater clarity on whether the Government intends to make changes to VAT, business rates, employer NICs or other taxes affecting hospitality businesses.
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