Budget 2026: business rates relief threshold rises to £18,000 but hospitality VAT stays at 20%
Chancellor John Healey's 28 October Budget extended rates relief for small retail, hospitality and leisure premises and confirmed a 3.9% wage rise, but brought no VAT or employer National Insurance relief.
Chancellor John Healey’s first Budget, delivered on 28 October 2026, left hospitality VAT at 20% and did nothing to ease the higher employer National Insurance costs facing operators, according to BigHospitality. Support was directed mainly at smaller businesses.
Rates relief for smaller premises
In England, the Small Business Rates Relief threshold for retail, hospitality and leisure businesses will rise from £12,000 to £18,000 in rateable value. Rateable value is the official estimate of a property’s annual rental value, which is used to work out business rates.
Healey said half of all retail, hospitality and leisure properties would pay no business rates as a result. However, a real-terms freeze means that bills can still rise in line with inflation.
The package will be paid for in three ways. The Government will tackle non-compliance on online marketplaces and raise gambling tax on higher-risk machine games. It will also extend a 1p supplement paid by businesses that have seen reductions or smaller increases in their business rates bills.
No movement on VAT
Earlier this year, trade bodies including UKHospitality launched the #VATsTheProblem campaign with chef Tom Kerridge. It called for hospitality VAT to be cut from 20% to 10% to protect jobs, keep prices affordable and support investment.
In February, Andy Burnham, then mayor of Greater Manchester and now prime minister, said he would argue for a VAT rate closer to those found in Europe. The Budget made no change to the rate.
Employment costs
For larger businesses, the Budget offered little on rising costs. Since April 2025, employer National Insurance contributions have stood at 15%, up from 13.8%, while the annual earnings threshold fell from £9,100 to £5,000 per employee. Those earlier changes weigh heavily on a labour-intensive sector with many part-time staff.
From 1 April 2027, the national living wage will rise by 3.9%, from £12.71 to £13.21 an hour. The rate for 18 to 20-year-olds will rise from £10.85 to £11.27.
Healey told the House of Commons the Budget was “for British businesses, big and small”.
Alcohol duty and owner reliefs
Small British brewers and cider makers will share £10m a year in alcohol duty relief. Wider alcohol duty rates will rise in line with the retail prices index, a measure of inflation, from 1 February 2027.
The lifetime limit for Business Asset Disposal Relief, formerly entrepreneurs’ relief, will be halved from £1m to £500,000 from 6 April 2027. The limit applies to qualifying capital gains eligible for relief, not to a business’s sale price. The Government said three-quarters of claimants would still receive relief on their entire gain.
A new Founders’ Relief will apply a 10% capital gains tax rate on up to £10m of lifetime gains, covering qualifying share disposals from 6 April 2027. It targets founders and significant early investors in high-growth, innovative UK companies. Eligibility is subject to technical consultation, and it is not yet clear whether hospitality businesses will qualify.
Ingredients and transport
Import tariffs will be removed on more than 100 products, including gherkins, baked beans and chocolate. Any saving for operators will depend on their sourcing and whether suppliers pass it on.
The 5p fuel duty cut has also been extended, with the planned inflation-linked increase deferred until 1 July 2027. That could help contain delivery, catering transport and supply chain costs.