What the ‘Great British Summer Savings’ VAT cut means for tourism and hospitality businesses

A temporary VAT reduction has been announced as part of the government's "Great British Summer Savings" initiative. While many businesses in the tourism, leisure and hospitality sectors have welcomed the move, it also introduces additional complexity that businesses need to prepare for quickly.

What's changing?

For a 69-day period, from 25 June to 1 September, VAT on certain supplies will reduce from 20% to 5%. This applies specifically to:

• Children's meals
• Children's admission tickets, such as cinemas and theatres
• Family admission tickets to qualifying attractions

The aim is to help families manage the cost of leisure activities during the summer holidays while encouraging more visitors across the sector.

Not as simple as it sounds

Although the headline rate reduction is straightforward, the detail is more complex. The reduced rate does not apply to all income streams, so businesses must carefully assess which products and services qualify.

For example:

• A genuine children's meal that is clearly marketed as such qualifies for the reduced rate.
• If a drink is included as part of that meal, it also qualifies.
• Drinks purchased separately remain subject to VAT at 20%.

For attractions, the rules vary depending on pricing structures. Cinemas, theatrical venues, and exhibitions with clearly defined children's tickets may find it easier to identify when to apply the reduced rate. Other attractions may need to demonstrate that they are genuinely family-focused to qualify.

Operational challenges

Implementing the change is not simply a finance exercise. It has wider operational implications across the business, including:

• Systems – EPOS and accounting systems must correctly record income at different VAT rates.
• Staff training – Front-of-house teams need clear guidance to answer customer questions confidently.
• Pricing decisions – Businesses must decide whether, and to what extent, they will pass the VAT saving on to customers.

Digital records must accurately support VAT returns and comply with Making Tax Digital requirements.

Pass on the saving – or not?

While the government expects businesses to pass the savings on to consumers, there is no obligation to do so. Each business must make a commercial decision based on its own circumstances.

Early feedback suggests a range of approaches:

• Some businesses plan to pass on the full saving
• Others intend to pass on only part of it
• Some may retain the benefit to help support margins

For many businesses, this temporary relief provides a welcome opportunity to strengthen financial resilience during a challenging trading period.

A short-term fix?

There is ongoing debate about whether temporary VAT reductions are the most effective way to support consumers and businesses. Evidence suggests that VAT reductions are not always fully reflected in lower prices, raising questions about their overall impact on affordability.

At the same time, UK tourism businesses continue to operate with a higher VAT rate than many European counterparts, where rates are often closer to 10%. This continues to fuel concerns around competitiveness, particularly when combined with rising employment costs, including wages and National Insurance contributions.

What should businesses do now?

To prepare for the change, businesses should:

• Confirm eligibility – Identify qualifying income streams.
• Decide on a pricing strategy – Determine whether to pass on all, part or none of the saving.
• Update systems – Ensure VAT is applied correctly.
• Train teams – Provide staff with clear guidance and messaging.
• Keep evidence – Document decisions and eligibility assessments.

HMRC has up to four years to review VAT treatments, so maintaining robust records is essential.

Need help?

This VAT reduction offers a welcome boost for the tourism and hospitality sector, but implementing the changes correctly will require careful planning. Reviewing eligibility, updating systems and maintaining accurate records will be key to avoiding issues further down the line.

Get in touch with your usual Larking Gowen contact or email enquiry@larking-gowen.co.uk.

Gillian McGill and Jo Burton, our Tourism Director, have recorded a podcast on this topic – search for Larking Gowen Insights wherever you get your podcasts, or click here to find out more.