Ask most hospitality owners what's squeezing their margins and VAT comes up fast. It's the biggest single number on every till receipt, it's charged on almost everything a café, pub or restaurant sells, and there's very little of it to reclaim against — food is mostly zero-rated, wages sit outside VAT entirely. It's an easy thing to point at.
It's also the one thing on this page that hasn't actually changed. The standard 20% rate has applied to hospitality sales since April 2022, when the pandemic-era reduced rate ended. Four and a half years without a move. In that same window, three other costs genuinely have moved — and moved a lot further and faster than VAT ever has.
UKHospitality is campaigning for a permanent cut to 10%, in line with France, Spain and Italy, and hundreds of hospitality businesses have backed it. Whatever happens to that campaign, it's worth being clear-eyed about what's actually been driving costs up while the argument runs. That's what this article does — and the calculator below it puts real numbers against your own business, not an average one.
Three Things That Have Genuinely Changed
All three below moved between the 2024/25 tax year and now. None of them are VAT, and none of them are speculation — they're published rates.
| What changed | 2024/25 | 2026/27 |
|---|---|---|
| National Living Wage (age 21+) | £11.44/hr | £12.71/hr |
| Employer National Insurance rate | 13.8% | 15% |
| NI secondary threshold (pay above this is liable) | £9,100/yr | £5,000/yr |
| Retail, Hospitality & Leisure rates relief | 75% | Replaced by a permanently lower multiplier |
The National Living Wage rose 11% in two years. For a business that runs largely on Living Wage staff, that lands on every shift, every week, before anything else on this page changes — nobody has to decide anything for the wage bill to go up.
Employer National Insurance rose from 13.8% to 15%, and the threshold above which it's charged dropped from £9,100 a year to £5,000 — so a bigger share of every wage is liable, on top of a higher rate. The one piece of genuinely good news: the Employment Allowance, which offsets some of this automatically, roughly doubled to £10,500, and the £100,000 cap that shut larger small businesses out of it was removed. It doesn't undo the rise, but it's a real offset worth claiming if you haven't checked.
Business rates told a more complicated story. Retail, hospitality and leisure premises had 75% knocked off their bill up to 2024/25. That relief was cut to 40% for 2025/26, and from 2026/27 it's gone altogether — replaced by a permanently lower rate baked into the bill itself, rather than an annual discount that could shrink again at the next Budget. For most small hospitality premises, the new permanent rate is a real reduction versus the standard rate. It's just a much smaller one than 75% relief used to deliver.
A fourth pressure doesn't show up in any published rate. Energy costs remain well above where they sat before 2021, and every supplier — the brewer, the greengrocer, the laundry, the maintenance contractor — is carrying their own version of the three changes above, and passing some of it through in their own prices. It's real, and it compounds everything else here. There's no single verified figure that applies to every kitchen, though — it only shows up properly in your own supplier invoices.
Run Your Own Numbers
The three changes above can be worked out precisely for any business with a wage bill and a rates bill. Enter a few details below to see the difference between what this would have cost in 2024/25 and what it costs now — set against what a cut to 10% VAT would actually be worth to the same business.
Estimated figures, to act as a guide. This calculator uses the details you enter and the published rates below — it isn't a precise calculation of your own costs.
Numbers you can actually use
This calculator uses published rates and a simplified model. Your own wage bill, rates bill and margins tell a more precise story — and that's the conversation worth having. As your ICAEW Chartered Accountant for hospitality, here's what that looks like:
- Management accounts — monthly or quarterly, so you can see the effect of cost changes while you can still act on them
- Payroll and Employment Allowance checks — making sure you're claiming what you're entitled to as NI rules shift
- Tips and tronc set-up — a compliant tronc keeps tips out of employer NI entirely; see the tips & tronc calculator
- VAT and bookkeeping — kept current, so nothing about VAT is ever a surprise, whatever the rate ends up being
- Someone to ask — “does this apply to us?” answered plainly, not in accountant-speak
Figures reflect published UK rates as at September 2026 and are general guidance, not advice tailored to your business. The calculator on this page is illustrative — always confirm current HMRC and Valuation Office figures and speak to us about your own circumstances.
