Hospitality 5% VAT rate: practical steps to maximise the benefit

The introduction of a temporary reduced VAT rate for parts of the hospitality sector is a welcome development albeit only temporary. 

At a time when cost pressures remain high, this provides an opportunity for operators to improve margins, revisit pricing strategies and stimulate demand. 

However, as with any short-term relief, the key to unlocking the benefit is getting the detail right from the start. 

What is changing? 

The government has introduced a temporary reduced VAT rate of 5% (down from 20%) on selected hospitality and leisure supplies, as part of a targeted summer stimulus for the sector.  

The relief applies for a limited time, from 25 June to 1 September 2026, creating a short but commercially important window for operators.  

Importantly, this is not a blanket reduction across all hospitality revenues. It applies only to specific categories of supply, including: 

• children’s meals consumed on the premises, where they are clearly marketed and sold as children’s menu items;

• children’s and family admission tickets for cinemas, theatres, exhibitions and similar events;

• admission to qualifying family attractions such as theme parks, zoos, museums and soft play centres, where the reduced rate can apply more broadly to visitors.

  
  

The policy is designed to stimulate demand during the peak summer period, encourage domestic tourism and support family spending.  

For many businesses, this creates immediate upside: 

• improved profitability on qualifying revenue;

• greater pricing flexibility;

• the ability to reinvest or support growth.

  
  

However, as we saw during previous VAT reliefs, the value is only fully realised where the rules are applied correctly and application of the relief is likely to be subject to scrutiny from HMRC. 

In particular, the scope depends heavily on how supplies are structured, marketed and sold. For example: 

• a children’s meal qualifies, but a discounted adult portion do not;

• a family ticket may qualify in full, whereas individual adult tickets do not;

• admission may qualify, but associated spend such as food, drink and retail may not unless it falls under one of the other headings.

  
  

Where operators should focus 

The main challenge is not the principle of the relief, but the practical implementation. 

In earlier schemes, notably during covid, areas that required careful handling included: 

• bundled or mixed supplies, where different elements may need to be split;

• consistent application across sites, brands and channels;

• ensuring EPOS and finance systems calculate the correct rate; 

• keeping pace with evolving HMRC interpretation of the rules.

None of these are barriers, but they do require early attention. 

A short window, a long tail 

Although the reduced rate may only apply for a limited period, the impact can last much longer. 

Experience shows that HMRC may revisit the position and refine guidance after the event. That means decisions made now, particularly around how transactions are treated and documented, can influence outcomes well beyond the life of the relief. 

Taking a practical, confident approach 

The most successful operators will focus on getting implementation right from day one. 

In practice, that means: 

• reviewing how supplies are structured and priced;

• ensuring systems correctly apply the reduced rate with EPOS set up to correctly identify qualifying items, apply the right VAT treatment at point of sale and operate consistently across all sites;

• documenting treatment clearly and consistently across the business.

Taking advice early can also help demonstrate that reasonable care has been applied, which is an important safeguard if positions are later reviewed. 

How we are supporting the sector 

We are working with hospitality businesses to help them maximise the opportunity while staying on the right side of the detail. 

This includes: 

• practical VAT reviews and scenario testing;

• EPOS and systems assessments;

• guidance on mixed supplies and apportionment;

• support with documenting positions and responding to HMRC.

  
  

This is a potentially positive move for the sector. With the right approach, it can deliver meaningful short-term benefit and longer-term value. 

If you would like support assessing qualifying supplies, reviewing systems or implementing the reduced rate, our hospitality team would be delighted to help. Get in touch with Mark Treacher mtreacher@mks.co.uk or Chris Godsave cgodsave@mks.co.uks.