The Government has introduced a temporary 5% VAT rate for selected family-focused supplies between 25 June 2026 and 1 September 2026. This is not a blanket VAT cut for the whole hospitality sector. It applies only to children’s meals served for consumption on the premises, children’s and family tickets for certain performances and exhibitions, and admission to qualifying family attractions.
If you run a restaurant, cafe, visitor attraction, cinema, theatre, soft play centre, zoo, museum, amusement park, or similar family-facing business, acting quickly and correctly could make a meaningful difference to your summer trading. The relief is welcome, but it also creates practical VAT, pricing, system and record-keeping issues. Businesses that do not manage the transition carefully may fail to capture the benefit or create problems when the rate returns to 20%.
This guide covers what the temporary rate applies to, how to update your systems and pricing, the VAT return implications, and what to do when the relief ends.
What the Temporary 5% Rate Covers
The temporary reduced rate applies from 25 June 2026 to 1 September 2026 inclusive. It replaces the standard 20% rate only for supplies that fall within the specific summer relief.
The main categories are:
| Supply | VAT rate during temporary period | Usual VAT rate |
|---|---|---|
| Children’s meals served from a children’s menu for consumption on the premises | 5% | 20% |
| Children’s cinema, theatre, concert, exhibition and show tickets | 5% | 20% |
| Family tickets for cinema, theatre, concerts, exhibitions and shows, where the package includes at least one child | 5% | 20% |
| Admission to qualifying family attractions, including amusement parks, zoos, museums, soft play centres and observation attractions | 5% | 20% |
| Adult-only tickets for cinemas, theatres, concerts, shows and exhibitions | 20% | 20% |
| Takeaway children’s meals | Normal VAT treatment | Normal VAT treatment |
| Alcoholic drinks | 20% | 20% |
| Sports facilities and sports participation | Normal VAT treatment | Normal VAT treatment |
For restaurants and cafes, the key point is that the relief applies to children’s meals held out for sale only as meals for children. A smaller adult portion, a lower-calorie adult option, or a discounted version of a standard meal does not automatically qualify.
For attractions, the rules are broader. Admission tickets for both children and adults can qualify if the attraction is within the eligible family-focused categories. However, separately supplied goods or services, such as merchandise, food, premium upgrades, or extras, keep their normal VAT treatment.
Our UK VAT rates guide gives a full overview of the rate structure across supply categories, and our VAT Calculator lets you check the VAT element on any price quickly.
Updating Your Till Systems and Pricing
The first practical step is to update your till system, EPOS software, website, booking platform, and invoicing software so the 5% rate applies only to qualifying supplies.
This matters because the relief is targeted. A restaurant may have children’s meals at 5%, adult meals at 20%, alcoholic drinks at 20%, and some cold takeaway items that may already be zero-rated. A visitor attraction may have general admission at 5%, but merchandise, food, or add-on experiences at their normal VAT rates.
Most modern EPOS systems allow different VAT codes for different product categories. Before 25 June, review every relevant product and service line. Do not simply change a whole department to 5% unless every item in that department genuinely qualifies.
For businesses issuing VAT invoices, such as venues billing schools, corporate groups, travel organisers or event partners, invoice templates need to show the correct rate for each line. A VAT invoice showing 20% where 5% should apply is wrong. So is an invoice showing 5% on non-qualifying items.
Our guide on what business owners should check before submitting a Xero VAT return is particularly relevant when mixed VAT rates apply.
The Pricing Strategy Decision
A temporary VAT rate reduction gives you a commercial choice. You can pass the saving on to customers, retain it as improved margin, or use a mixture of both.
The Government expects eligible businesses to pass the benefit on to families where possible. From a commercial perspective, passing on some or all of the saving can help increase footfall during the school holidays. But the decision still needs to be made carefully.
For example, a children’s meal priced at £6 including 20% VAT generates £5 net income and £1 VAT. At the same £6 price with 5% VAT, the net income rises to £5.71 and VAT falls to 29p. You could reduce the price to £5.50, give customers a visible saving, and still improve your net income slightly compared with the 20% VAT position.
The right answer depends on your margins, local competition, customer sensitivity, and whether you are using the VAT cut as a marketing opportunity.
Understanding input VAT and output VAT is important here. The temporary relief reduces output VAT on qualifying sales, but most input VAT on your purchases will remain unchanged. That can improve your net VAT position and cash flow during the relief period.
Cash Flow During the Temporary Rate Period
One of the direct benefits of the temporary rate is improved cash flow on qualifying sales.
If you sell £1,050 of qualifying children’s meals at 5% VAT, the VAT element is £50 and the net sale is £1,000. Under the standard 20% rate, the same £1,200 gross sale would include £200 VAT and £1,000 net sale. The reduced rate means less of the money collected at the till belongs to HMRC.
For a busy summer business with high volumes of qualifying children’s meals or family admission tickets, the cash flow impact can be meaningful. However, this is not a reason to let record-keeping slip. The relief lasts only until 1 September 2026, and you need clean records to show which supplies qualified and which did not.
How poor invoice tracking can damage your cash flow is a useful reminder that short-term cash improvements can be lost if debtor management and bookkeeping are weak.
Our management accounts accountant services give you monthly visibility of how the VAT change is affecting your cash position, margins and profitability.
Setting Up Xero for the Rate Change
If you use Xero, you will need the correct VAT rates and sales codes set up before the relief starts. Xero can handle mixed VAT rates, but only if your products, services, sales accounts and tax rates are configured properly.
Working with a Xero certified accountant before the first reduced-rate sales go through is sensible. It is much easier to set this up correctly from day one than to correct weeks of sales coded at the wrong rate.
Our guide on 5 common Xero mistakes covers the coding errors that often appear during rate changes. How Xero can make it easier to stay on top of cash flow also explains how real-time accounting data can help you monitor the benefit as it happens.
VAT Returns During the Mixed Rate Period
If your VAT return period includes dates before 25 June, during the relief, and after 1 September, you will have a mixed-rate period. Your return may include 20%, 5%, zero-rated and exempt supplies in the same quarter.
For most businesses, this is manageable if the coding is correct. The risk comes from treating all sales as qualifying when only some do, or forgetting to revert back to the correct rate after 1 September.
If your business uses the Flat Rate Scheme, do not assume your percentage changes automatically. You need to check the correct treatment for your business and sector during the temporary relief period.
Understanding VAT registration gives useful background on schemes and obligations, while signs your business needs to register for VAT early is worth reading if summer trading could push your taxable turnover over the £90,000 registration threshold.
Planning for the Reversion
The reduced rate ends on 1 September 2026. From 2 September, qualifying supplies return to their normal VAT treatment unless the Government extends or changes the rules.
Planning the reversion is as important as implementing the cut. Your EPOS system, booking platform, website, menus, Xero setup and invoice templates all need to be updated again. If you keep charging 5% after the relief ends, you could under-declare VAT and create a liability to HMRC.
Good Bookkeeping services throughout the temporary period give you a clean audit trail and make the return to normal rates easier to manage.
Employer Costs Alongside the VAT Relief
The VAT cut arrives after a difficult period for hospitality and leisure employers. From April 2025, employer National Insurance increased to 15%, and the Secondary Threshold fell to £5,000. That increased employment costs for many businesses with large teams, variable hours, and seasonal staffing.
The relief helps with VAT on selected sales, but it does not reduce payroll costs. Our payroll service Stockport team supports businesses where variable hours, tips, holiday pay and seasonal recruitment all add complexity.
Our guide on employer NI rates explains the current position, and 5 payroll problems small employers can avoid covers common payroll errors.
Corporation Tax and Management Accounts
If the temporary VAT relief improves your margins, your taxable profits may also increase. That is positive, but it means your corporation tax forecast should be updated.
A corporation tax accountant can help you model the impact. The Corporation Tax Calculator gives a quick estimate, while our guide on how to reduce corporation tax covers available planning points.
For corporation tax deadlines in the UK, remember that payment is generally due 9 months and 1 day after your accounting period ends.
How management accounts help directors control business spending is directly relevant during a short relief window. The 3 accounting reports every limited company owner should review regularly should include margin comparisons against previous summers. Management accounts vs year-end accounts explains why annual accounts alone are too slow for this type of opportunity.
The Bigger Picture for Hospitality in 2026
The temporary relief is helpful, but it is narrow. It does not apply to all meals, all drinks, hotel accommodation, general hospitality, or all visitor spending. It should therefore be treated as a targeted summer measure, not a full-sector VAT cut.
For business owners considering wider restructuring, our relocation service dubai uk businesses advisory team can help assess longer-term options. Working with stockport accountancy services professionals means your VAT, payroll, corporation tax and management accounts are considered together.
FAQs: The Temporary 5% VAT Rate
Does the 5% rate apply to all food and drink in a restaurant?
No. It applies to qualifying children’s meals for consumption on the premises. Adult meals, alcoholic drinks and takeaway meals keep their normal VAT treatment.
Does it apply to hotel accommodation?
No. The 2026 summer relief is not the same as the pandemic-era hospitality VAT cut. Hotel and B&B accommodation are not generally within this relief.
Do I need to reduce prices?
There is no automatic legal requirement to reduce prices, but the Government expects qualifying businesses to pass savings on to families. The decision should be made commercially and communicated clearly.
Does the reduced rate affect input VAT?
No. Your input VAT recovery on purchases follows the normal rules. The relief affects output VAT on qualifying sales.
What if I am not VAT registered?
If your rolling 12-month taxable turnover exceeds £90,000, you must register. Our guide to the hidden cost of the VAT threshold and understanding VAT registration explain what to watch.
Make the Most of the Temporary Relief
The temporary 5% VAT rate is a useful summer opportunity for businesses serving families, but only if it is applied correctly. Check your supplies, update your systems, brief your team, monitor your VAT returns and plan the reversion before 1 September.
At U&W Chartered Accountants, we help hospitality, leisure and family attraction businesses across Stockport and the wider UK manage VAT, payroll and accounting efficiently.
Find out more on our about page or get in touch via our contact page. You can request an instant quote for your limited company to see how our services work.
