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Hospitality VAT Alert: How to Prep for the New 5% Rate on June 25th

  • 9 hours ago
  • 5 min read

Author: Jessica


If you’re running a restaurant, a boutique hotel, or a busy café in the UK, your calendar is likely already packed with bookings for the summer season. But there is one date you need to circle in red right now: June 25th, 2026.

In a move designed to boost the sector during the peak holiday months, the government has introduced a temporary 5% VAT rate for specific hospitality services. While this is fantastic news for your profit margins and potentially your customers' wallets, it comes with a significant administrative headache.

At Accountant Search, we’ve seen how quickly VAT changes can trip up even the most organized SME. From updating your Point of Sale (POS) systems to ensuring your accounting software doesn't default to the standard 20%, there is a lot to do before the clock strikes midnight on the 24th.

In this guide, we’ll break down exactly what qualifies for the new rate, how to configure your software, and why having a specialist accountant in your corner is your best defense against HMRC penalties.

What is the Temporary 5% VAT Rate?

The "Great British Summer Savings" initiative is a targeted tax relief period starting on June 25th and scheduled to run through the heart of the summer. For many businesses, this feels like a flashback to previous post-pandemic reliefs, but the rules this time around are specific.

The primary goal is to encourage family spending and support the UK’s tourism infrastructure. However, failing to apply the correct rate: or applying it to the wrong items: can lead to messy reconciliations and potential fines during your next VAT deadline.

What Items Qualify for the 5% Rate?

Not everything on your menu or in your booking system will drop to 5%. It is vital to distinguish between qualifying and non-qualifying supplies to keep your records accurate.

Qualifying hospitality food and drinks

1. Food and Non-Alcoholic Drinks

The 5% rate applies to hot and cold food and non-alcoholic beverages intended for consumption on the premises. This includes:

  • Restaurant Meals: Standard dine-in meals, including breakfasts, lunches, and dinners.

  • Café Snacks: Sandwiches, cakes, and pastries consumed in-house.

  • Soft Drinks: Coffees, teas, juices, and sodas.

Crucial Note: Alcohol is strictly excluded. If a customer orders a burger and a pint of lager, the burger and the soft drink (if applicable) are at 5%, but the lager remains at the standard 20% rate. This "split-rate" billing is where many businesses face technical hurdles with their POS systems.

2. Accommodation

For those in the lodging sector, the 5% rate is a massive boon. It applies to:

  • Hotels and B&Bs: Room rates and associated stays.

  • Caravan Parks and Campsites: Pitch fees and related facilities.

  • Holiday Rentals: Short-term let properties.

Modern boutique hotel room

If you have bookings that span the June 25th start date (e.g., a guest checking in on June 23rd and checking out on June 27th), you will need to apportion the VAT accordingly. The days before the 25th are billed at 20%, and the days from the 25th onwards are at 5%. This is a common area for tax saving opportunities if managed correctly but an easy place to make a mistake.

How to Update Your Accounting Software

Whether you are on Team Xero or Team QuickBooks, you need to manually intervene to ensure your 2026 VAT returns are correct. Don't assume the software will "auto-detect" the date change for your specific industry.

Updating Xero

Xero is highly flexible, but you need to set the foundations early.

  1. Create a New Tax Rate: Go to Accounting > Advanced > Tax Rates. Click "New Tax Rate" and label it clearly, such as "5% Hospitality Summer 2026."

  2. Update Chart of Accounts: If you have specific accounts for "Food Sales," you may want to update the default tax rate for these accounts starting June 25th.

  3. Inventory Items: If you use Xero’s inventory or tracked items, you will need to bulk-edit these to reflect the 5% rate.

Updating QuickBooks Online

QuickBooks users should follow a similar path:

  1. Edit VAT Settings: Navigate to the Taxes tab and select "Edit VAT."

  2. Add a Custom Rate: If the 5% hospitality rate isn't already visible in your dropdown, you can create a custom rate. Ensure you select "Reduced" as the category.

  3. Assign to Products: Go to your Products and Services list and update the tax category for all qualifying items.

Accounting software VAT settings

For a deeper dive into which platform handles these transitions better, check out our Xero vs QuickBooks comparison.

Compliance Tips for the Transition

The transition period is when HMRC's "red flags" are most likely to go off. Here is how to stay compliant:

  • Audit Your POS System: Your accounting software is only as good as the data it receives. Ensure your front-of-house POS (like Square, Lightspeed, or Zettle) is programmed to apply the 5% rate to food and 20% to alcohol automatically.

  • Keep Your Receipts Detailed: Ensure your invoices clearly show the VAT breakdown. If you are issuing a "Family Ticket" for an attraction that includes food, ensure the VAT is applied correctly to the bundle.

  • Watch the "Tax Point": The tax point is usually the date of the invoice or the date the payment is received (whichever is earlier). If a customer pays in full for a July stay back in May, they may have been charged 20%. You may need to issue a credit note or adjust the VAT if you want to pass that saving on to the customer: or keep the 20% if the tax point occurred before the rate change.

The Importance of a Hospitality-Specialist Accountant

Hospitality is a unique beast. Between high staff turnover, complex payroll (tips and tronc), and fluctuating VAT rates, a generalist accountant might miss the nuances that save you thousands.

A specialist understands the "mixed supply" rules. For example, if you offer a "Dinner, Bed and Breakfast" package, how do you split the VAT if the breakfast includes fresh orange juice (5%) but the dinner includes a bottle of wine (20%)?

At Accountant Search, we specialize in matching small businesses with the ideal accountant. We can connect you with experts who specifically handle the hospitality sector, ensuring you aren't just compliant, but optimized for growth.

Accountant and hospitality business owner

Your Pre-June 25th Checklist

Before the rush begins, take these four steps:

  1. Verify Your Items: List every item you sell and categorize it as 5% or 20%.

  2. Contact Your Software Provider: If you use a niche hospitality POS, ask them for their "VAT Change Over" guide.

  3. Train Your Staff: Ensure your servers know why the receipts look different so they can explain it to curious customers.

  4. Consult a Pro: Don't leave your June/July VAT return to chance. A quick consultation now can prevent a massive headache in September.

The June 25th change is a golden opportunity for the UK hospitality industry to bounce back and thrive this summer. By getting your digital house in order now, you can focus on what you do best: providing an unforgettable experience for your guests.

Ready to find an accountant who knows the hospitality sector inside out? Find your match today and let us take the stress out of the 5% transition.

 
 
 

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