Great British Summer Savings: A temporary VAT cut

In summary

• The VAT rate is being temporarily reduced from 20% to 5% on certain supplies, including children’s menu meals served in restaurants for consumption on the premises
• Children’s and family tickets for admission to cinemas, theatres, exhibitions and shows, and admission tickets, for both adults and children, to family-friendly attractions, such as museums, zoos, soft play centres and wildlife parks are also included 
• Businesses need to ensure they know which of their supplies are affected, ensure their accounting software is updated accordingly, and arrange for price lists (physical and electronic) to be updated
• They may want to update or change their marketing material, so that “child” and “children” are specifically defined  
• They must also decide whether to fully or partially pass on or retain the VAT saving, and possibly make adjustments or provide partial refunds, where payment was collected before 25 June for activities taking place between 25 June and 1 September 

This summer’s temporary VAT reduction will be welcome by businesses operating in the hospitality and leisure sectors, creating a valuable commercial opportunity. But businesses will need to ensure the measures are correctly applied to maximise the benefits and avoid errors, which could result in VAT becoming due, along with penalties and possibly reputational damage. 

The measure covers a targeted range of supplies aimed at reducing the cost to families for leisure activities. They include children’s meals consumed on restaurant premises, family and children’s tickets for cinemas, theatres and exhibitions and admission to attractions such as museums, zoos, wildlife parks and soft play centres.

For many businesses, identifying exactly where the reduced rate applies will not be straightforward, particularly where only some supplies benefit from the reduced rate, while others remain at the 20% VAT rate.  

On the one hand, the temporary reduction is an opportunity to either enhance  providers’ commercial position by promoting and passing on the VAT saving to drive demand or protect margins during a period of continued cost pressure.

On the other hand, there is a risk of incorrect VAT treatment. If businesses continue to apply the standard rate of VAT for qualifying services, they will overcharge customers and potentially hurt their reputation. If the 5% rate is applied too widely, they will create underpaid VAT liabilities and exposure to penalties and interest.  

Applying the wrong rate, even unintentionally, requires correction. HMRC is likely to closely monitor how businesses implement the temporary relief, particularly where it considers the scope of the reduction has been applied too widely, or where there is inconsistent treatment or weak record keeping and controls. 

Although the change appears straightforward in principle, the practical realities are more involved. Businesses will need to ensure that systems are updated accurately and on time, with the correct rate applied from 25 June and a smooth transition back to 20% from 2 September.

Particular areas of complexity include:

• Mixed or bundled supplies, where qualifying and non-qualifying elements are sold together and require careful apportionment 
• Advance payments, where the time of supply determines the applicable VAT rate 
• Season tickets allowing entries outside the period  

Ensuring operational consistency is equally important, as staff need to understand and correctly apply the rules across different products, services and customers.

These are precisely the areas where errors are most likely to arise, and where HMRC scrutiny is typically focused and concerns could lead onto a wider review. 

Given the mandatory nature of the change and the limited implementation window, early planning is critical. Businesses that take a structured and informed approach will be best placed to avoid costly errors and capture the benefits with confidence.

Seeking specialist VAT advice at an early stage can help ensure that qualifying supplies are correctly identified, the reduced rate is correctly applied and systems and processes are configured correctly. Advice can also provide assurance when managing more complex scenarios, such as bundled offers and advance sales, while significantly reducing the risk of HMRC challenge and penalties. 

S&W combines technical VAT expertise with a practical understanding of the hospitality and leisure sectors. We work closely with businesses to ensure that changes like this are implemented accurately, efficiently and with minimal disruption.

Our team can provide clear, tailored advice to help you apply the reduced rate correctly, address areas of complexity and establish robust processes that stand up to HMRC scrutiny. We also support businesses in identifying opportunities to maximise the commercial benefit of the relief, ensuring that compliance and strategy go hand in hand. 

Approval code: NTEH7052621