VAT Cut and Mileage Rate Increase 2026: What Businesses Need to Know

On 21 May 2026, the Government announced a package of temporary tax measures aimed at easing cost pressures for families and workers. Two changes are particularly relevant for many businesses and employers:

• a temporary 5% VAT rate for certain children’s meals, children’s tickets and family attractions; and

• an increase in the approved mileage rate for cars and vans from 45p to 55p per mile for the first 10,000 business miles in the 2026/27 tax year.

HMRC confirms that the temporary VAT rate applies from 25 June 2026 to 1 September 2026 inclusive. The new mileage rate applies from the start of the 2026/27 tax year and is backdated to 6 April 2026.

Temporary VAT reduction for summer family activities

The temporary VAT cut reduces the VAT rate from 20% to 5% for certain supplies during the summer holiday period.

The reduced rate applies to three main categories:

1. Certain children’s meals

2. Children’s tickets for cinemas, theatres, shows, concerts and exhibitions

3. Admission to certain family attractions

HMRC says the measure is aimed at businesses making consumer-facing supplies to families with children, including restaurants, cafés, cinemas, theatres, performance venues, museums, zoos, soft play centres, amusement parks, theme parks and similar family attractions.

Children’s meals

The 5% rate applies where a meal is clearly held out for sale as a children’s meal and is supplied as part of catering services by a restaurant, café or similar establishment for consumption on the premises.

This will usually depend on how the meal is marketed, presented and priced — for example, whether it appears on a dedicated children’s menu.

The reduced rate does not apply simply because a meal is a smaller adult portion, a lower-calorie option, a discounted adult meal, a shared meal, or a takeaway meal.

Children’s tickets and family tickets

The reduced rate applies to children’s tickets for:

• cinemas;

• theatres;

• shows;

• concerts; and

• exhibitions.

Where a ticket is sold as a family ticket and includes at least one child, HMRC says the reduced rate can apply to the whole family ticket. Standalone adult tickets remain standard-rated.

Family attractions

The reduced rate also applies to admission to certain attractions suitable for families with children. This includes, among others:

• amusement parks and fairs;

• theme parks and water parks;

• adventure parks;

• museums and heritage sites;

• zoos, aquariums and wildlife parks;

• farm visitor attractions;

• soft play centres and indoor play facilities;

• nature reserves and botanical gardens;

• observation attractions.

For these attractions, the 5% rate applies to admission tickets for all customers, not just children. However, the reduced rate applies only to the admission charge. Separately supplied food, merchandise, upgrades or add-ons keep their normal VAT treatment.

Advance bookings and refunds

The reduced VAT rate applies to qualifying admissions between 25 June 2026 and 1 September 2026.

Where tickets have already been paid for in advance, HMRC says businesses may apply the lower VAT rate under the normal change-of-rate rules. Where a business has already accounted for VAT at 20% and chooses to apply the lower rate, it should make the necessary VAT adjustments. The Government expects customers who prepaid additional VAT to be refunded.

Businesses should therefore review:

• bookings already taken for the summer period;

• VAT-inclusive pricing;

• ticketing and till systems;

• customer refund policies;

• how mixed packages are treated for VAT.

Mileage rate increase: 55p per mile

The approved mileage rate for cars and vans has increased from 45p to 55p per mile for the first 10,000 business miles in the 2026/27 tax year.

The updated HMRC rates are:

Vehicle type	First 10,000 business miles	Each mile over 10,000
Cars and vans	55p	25p
Motorcycles	24p	24p
Bicycles	20p	20p

The previous 45p rate for cars and vans had applied from 2011 to 2026. The rate after 10,000 miles remains 25p per mile.

What this means for employers

Employers can reimburse employees who use their own car or van for business journeys at up to the HMRC-approved mileage rate without the payment being treated as taxable pay, provided the mileage is genuine business mileage and suitable records are kept.

Employers should now review:

• mileage reimbursement policies;

• payroll and expenses systems;

• claims already made since 6 April 2026;

• whether employees should be reimbursed at the full 55p rate;

• how mileage records are being retained.

Where an employer pays less than the approved rate, employees may be able to claim tax relief on the difference. MoneySavingExpert gives the example of an employer paying 30p per mile when the approved rate is 55p, with the employee potentially able to claim tax relief on the 25p difference.

What this means for self-employed clients

Self-employed individuals who use simplified expenses for business mileage can also benefit from the increased car and van mileage rate for the first 10,000 business miles in 2026/27.

The Low Incomes Tax Reform Group confirms that the increase applies to approved mileage allowance payments, mileage allowance relief and self-employed mileage.

Key actions to take now

Businesses should consider whether they need to:

• update VAT rates in till, booking or accounting systems;

• review advance bookings for qualifying summer events;

• decide whether to pass VAT savings on to customers;

• update staff mileage policies;

• adjust mileage claims submitted since 6 April 2026;

• communicate the mileage change to staff.

  
  

Need help?

Please contact us if you would like help reviewing your VAT treatment, pricing, bookkeeping, payroll or staff mileage arrangements.