With the temporary 5% VAT rate effective from 25 June 2026, now is the critical time to ensure you are staying compliant. While the headline rate reduction sounds straightforward, the detail could have real cost implications (and opportunities!) for your business.
A key area hospitality businesses should pay close attention to is the VAT treatment of children’s meals. This is a common area where assumptions can lead to costly mistakes.
The reduced 5% VAT rate applies only where a meal is sold specifically as a children’s meal, with its own clearly defined menu item and pricing. This includes any non-alcoholic drink supplied as part of that meal. However, if the meal includes an alcoholic drink, it will no longer be treated as a qualifying children’s meal for the reduced rate.
It is important to note that the reduced rate does not extend to discounted adult portions, takeaway children’s options, or meals intended to be shared. For restaurants, pubs, cafés and other hospitality operators, this means menu design and point-of-sale (POS) setup are critical. If your systems are not configured to distinguish qualifying children’s meals correctly, there is a real risk of applying the wrong VAT rate, potentially creating compliance issues and unexpected liabilities.
Businesses should also be aware that any meals already exempt from VAT, such as those supplied as part of exempt education or care services, will remain unaffected by these changes.
The temporary VAT rate also carries important implications for hospitality businesses when it comes to cash flow and supply chain management, two areas that are central to day-to-day operations.
For example, if a business has already received prepayments at the standard 20% rate for supplies within the relief period, they can choose to apply the 5% rate retrospectively, but this carries an obligation to refund customers any excess VAT charged.
Whilst the relief period is relatively short (25 June to 1 Sep 2026 inclusive), businesses must ensure they are operating in a compliant way through the summer. Product and service eligibility, POS & billing systems, communications, staff training, and VAT accounting all need to reflect the changes, as well as on reversion to 20% on the 2 September.
The BDO NI VAT team are working closely with clients across the hospitality, leisure, retail and cultural sectors in all these areas and we can support your business with all elements of the changes addressed above.
BDO Northern Ireland
+44 (0)28 9043 9009
www.bdoni.com