HOSPITALITY & RESTAURANT ACCOUNTANTS
Hospitality runs on thin margins and awkward VAT. Small errors in either compound quickly.Very little about hospitality accounting is standard. The VAT liability of a single item can change depending on whether it is hot or cold, eaten in or taken away. Tips and service charges have their own treatment for PAYE and National Insurance, and getting a tronc arrangement wrong is expensive on both sides. Wastage, staff meals and stock movements distort gross margin unless they are recorded deliberately.
TaxDigit acts for restaurants, cafés, takeaways, pubs, bars, hotels and food producers. We handle the compliance and, more importantly, we produce management numbers you can actually run a kitchen on — gross margin by site, wage percentage against covers, and a stock figure that reflects reality.
What hospitality businesses need
The four areas where hospitality differs from ordinary retail.
- VAT on food and drink — the hot and cold, eat-in and takeaway distinctions applied consistently, and whether the Flat Rate Scheme still works for you.
- Tips, service charges and tronc — the PAYE and National Insurance treatment, and a tronc arrangement structured so it does what you think it does.
- Stock and gross margin — opening and closing stock, wastage, staff meals, and margin measured by site and by category rather than in one lump.
- Payroll for shift teams — high turnover, variable hours, holiday pay accrual and auto-enrolment on a rolling basis.
Where the money leaks
Four recurring issues we are asked to fix, in order of what they usually cost.
- VAT applied inconsistently at the till, so the return is wrong in both directions and nobody can reconcile it.
- Tips handled informally, creating a PAYE and National Insurance exposure that surfaces years later.
- Stock never counted properly, so gross margin is an estimate and theft or waste goes unnoticed.
- Employer National Insurance at 15% on a large team, with the £10,500 Employment Allowance unclaimed.
The numbers that decide whether a site works
Three figures, produced monthly, tell you more than a year-end set of accounts ever will.
Gross margin
By site and by category — wet against dry, food against drink. A two-point movement in margin is the difference between a profitable site and a marginal one, and it is invisible in annual accounts.
Wage percentage
Labour as a percentage of net sales, tracked weekly against covers. Employer National Insurance runs at 15% with a £5,000 secondary threshold, so the true cost of an hour is higher than the rate on the rota.
Stock and wastage
Counted, not estimated. Without a real closing stock figure, cost of sales is overstated, profit is understated and the corporation tax computation is built on a guess.
Who we help
- Restaurants, bistros and fine dining.
- Cafés, coffee shops and bakeries.
- Takeaways, street food and delivery-only kitchens.
- Pubs, bars and nightclubs.
- Hotels, guest houses and serviced accommodation.
- Multi-site operators needing consolidated and per-site reporting.
Frequently asked questions
How does VAT work on hot and cold food?
Broadly, cold takeaway food is zero-rated while hot takeaway food and anything consumed on the premises is standard-rated — but the exceptions are numerous and the boundaries genuinely fine. The practical risk is not knowing the rule; it is applying it inconsistently at the till, which produces a VAT return nobody can reconcile. We normally start by reviewing how the EPOS system is configured.
How should we handle tips and service charges?
It depends on how they reach the staff. Amounts distributed by the employer generally go through PAYE, and National Insurance may apply depending on the arrangement. A properly constituted tronc, run by a troncmaster independently of the employer, can change the National Insurance position — but only if it genuinely operates that way in practice rather than on paper.
Should we use the VAT Flat Rate Scheme?
Sometimes, but it has become much less attractive for hospitality since the limited cost trader rules. It depends on your zero-rated sales mix and how much VAT you incur on purchases. It is worth a proper calculation rather than a rule of thumb, and worth revisiting if your menu or trading pattern changes.
Can you produce weekly or monthly management accounts?
Yes, and for most hospitality operators that is the part that pays for itself. Gross margin by category, wage percentage against covers and a real stock figure, produced monthly, give you time to act. Annual accounts tell you what happened after it is too late to change it.
We are opening a second site. What changes?
Reporting, mainly — you need per-site figures as well as consolidated ones, or a weak site hides behind a strong one. There are also structural questions: whether the second site sits in the same company or a new one, and whether that affects your VAT registration and your corporation tax marginal relief limits, which are divided between associated companies.
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