Hospitality businesses are not like other businesses

If you run a restaurant, pub, cafe, or hotel in the UK, you already know that. Your margins are tight. Your staff work irregular hours. Your stock turns over fast. And your customers expect consistency every single time they walk through the door.

A generalist accountant who handles a mix of tradespeople, consultants, and ecommerce sellers will not understand the specific financial pressures of your sector. You need a hospitality accountant who knows how a wet pub margin works, what happens when a supplier delivers short on your Friday order, and how to structure gratuity payments so they don't trigger unnecessary tax bills.

This article explains exactly what a specialist accountant for hospitality does differently, and why it matters for your bottom line.

What makes hospitality accounting different

Hospitality businesses operate on cash and margin. The core financial challenges are:

  • Gross profit on food and drink. A 70% GP on wet sales (drinks) and 60% on dry sales (food) is common for pubs. Restaurants aim for 65-70% on food. If your accountant doesn't know these benchmarks, they cannot tell you when your costs are drifting.
  • Wastage and shrinkage. Over-portioning, spillage, theft, and supplier short deliveries all eat into margin. A good hospitality accountant will help you set up stock control systems that flag discrepancies before they become material.
  • Irregular staffing. Zero-hour contracts, split shifts, overtime, and tips mean payroll is more complex than a standard 9-5 business. Getting PAYE, NI, and minimum wage compliance wrong is expensive.
  • VAT complexity. Different rates apply to food (0% or 20% depending on whether it's eaten on or off premises), alcohol (20%), accommodation (20% or reduced rate in some cases), and soft drinks (20%). Getting the VAT treatment wrong on a mixed bill is a common HMRC enquiry trigger.
  • Tips and tronc. How you handle service charges and tips determines whether they are subject to employer NI, employee NI, or income tax. The rules changed in October 2024. More on that below.
  • Seasonality and cash flow. A seaside hotel in Cornwall makes 60% of its annual revenue in July and August. Your accountant needs to structure your tax payments, VAT returns, and supplier terms around that reality.

VAT in hospitality: get it right or HMRC will find you

VAT is the single biggest compliance risk for hospitality businesses. The rules are not intuitive.

Food. Most food sold for takeaway is zero-rated. But if you provide seating or eat-in facilities, the same food becomes standard-rated at 20%. That means a sandwich sold from a counter to a customer who eats it standing up is zero-rated. The same sandwich served on a plate to a seated customer is 20% VAT. Your EPOS system must handle this correctly.

Alcohol. Always standard-rated at 20%. No exceptions.

Accommodation. Standard-rated at 20%. But if you provide accommodation for more than 28 consecutive nights, the VAT rate drops to 0% for the portion beyond 28 nights. This matters for serviced apartments and long-stay hotels.

Tourist accommodation. From April 2025, the reduced rate of 5% for holiday accommodation (caravans, camping, holiday lets) ended. These are now standard-rated.

A specialist hospitality accountant will review your EPOS data, your VAT returns, and your pricing to ensure you are not underpaying (which attracts penalties) or overpaying (which leaves money on the table).

If your turnover is approaching or has crossed the VAT registration threshold of £90,000, you need to register within 30 days. A good accountant will help you decide whether to use the Flat Rate Scheme (still available for hospitality, though limited cost traders revert to 16.5%) or standard VAT accounting.

Tips, tronc, and the new law from October 2024

The Employment (Allocation of Tips) Act 2024 came into force on 1 October 2024. It changed how hospitality businesses must handle tips and service charges.

Key changes:

  • Employers must pass on 100% of tips and service charges to workers. No deductions for admin fees, card processing charges, or anything else.
  • Tips must be distributed fairly and transparently. You need a written policy that explains how tips are shared.
  • A tronc system (a separate payroll for tips) remains the most tax-efficient way to handle gratuities. Tips paid through a tronc are exempt from employer NI. Tips paid through your main payroll are not.
  • HMRC can enforce compliance and workers can take claims to an employment tribunal.

Your accountant for hospitality should have set up or reviewed your tronc system before October 2024. If they did not, you may be paying unnecessary employer NI on tips or exposing yourself to tribunal claims.

Payroll for hospitality: zero hours, overtime, and minimum wage

Hospitality payroll is not straightforward. Your staff may work 10 hours one week and 30 the next. They may work split shifts across lunch and dinner service. They may receive tips, service charges, and overtime at different rates.

The National Minimum Wage (NMW) rules are strict. HMRC targets hospitality businesses for NMW compliance checks because the sector has high staff turnover and irregular hours. Common mistakes include:

  • Not counting time spent on training, cleaning, or closing duties as working time.
  • Deducting uniform costs or DBS checks from wages, taking the effective hourly rate below NMW.
  • Not paying for time spent waiting for tables (on-call time) if staff are required to be on the premises.

A specialist hospitality accountant will run your payroll through software like BrightPay or Sage 50 and check every employee's effective hourly rate against the applicable NMW rate. They will also ensure your payroll software handles tips and tronc correctly.

If you use Xero or FreeAgent for bookkeeping, your accountant can integrate payroll directly, saving you time on data entry. We recommend reviewing your payroll setup annually to ensure compliance and efficiency.

Stock control and gross profit analysis

Your gross profit is the single most important number in your business. If you are a pub with wet sales at 68% GP when the benchmark is 70%, that 2% difference on a £200,000 annual wet turnover is £4,000 of lost profit. Every year.

A good hospitality accountant will not just look at your year-end accounts. They will review your monthly management accounts, compare your actual GP to sector benchmarks, and ask questions when the numbers drift.

They will also help you set up stock control systems. That means weekly or monthly stock takes, reconciliation to sales, and analysis of variance. If your food GP is 62% but you are buying 30% more chicken than your sales suggest, something is wrong. It could be portioning, theft, or supplier short deliveries. Your accountant should flag it.

Many hospitality accountants use integrated tools like Dext (formerly Receipt Bank) to capture supplier invoices automatically and Xero to track stock movements. If your current accountant does not offer this, you are working harder than you need to.

Corporation tax for limited company hospitality businesses

Most hospitality businesses above a certain size operate through a limited company. The corporation tax rules are the same as for any other limited company, but the planning opportunities are specific to the sector.

For the 2025/26 tax year:

  • Small profits rate: 19% on profits up to £50,000.
  • Main rate: 25% on profits above £250,000.
  • Marginal relief applies between £50,000 and £250,000.

If you run multiple venues through separate limited companies, the associated companies rules apply. That means the £50,000 and £250,000 thresholds are divided by the number of associated companies. A group of four venues sharing ownership would have a small profits threshold of £12,500 each, not £50,000.

Capital allowances are relevant for hospitality businesses that invest in fit-out, kitchen equipment, furniture, and fixtures. The Annual Investment Allowance (AIA) of £1,000,000 covers most plant and machinery. Full Expensing is also available for limited companies on main-rate assets. Structures and Buildings Allowance (SBA) gives 3% per year on qualifying building costs.

If you are planning a refurbishment or extension, talk to your hospitality accountant before you start. The timing of expenditure can affect your corporation tax bill significantly.

Choosing the right accountant for your hospitality business

Not every accountant who claims to work with hospitality businesses actually understands the sector. Here is what to look for:

  • Do they know the benchmarks? Ask what a good wet GP is for a pub. If they hesitate, move on.
  • Do they understand tronc? They should be able to explain the difference between a discretionary and a mandatory service charge, and the tax implications of each.
  • Do they use sector-specific software? Xero, FreeAgent, or Sage 50 for accounts. BrightPay or Iris for payroll. Dext for invoice capture. EPOS integration matters.
  • Do they visit your venue? A good accountant will want to see your operation. They will walk the floor, look at your stock room, and understand your flow of customers and cash.
  • Are they ICAEW qualified? The ICAEW qualification means the firm is regulated, insured, and subject to professional standards. At Holloway Davies, we are ICAEW qualified and we work with hospitality businesses across the country, from a Shoreditch cocktail bar to a family-run hotel in the Lake District.

You can book a free initial consultation to discuss your specific situation. We will tell you honestly whether we are a good fit for your business.

What a hospitality accountant costs

Fees vary depending on the size and complexity of your business. For a single-site restaurant or pub turning over £150,000 to £500,000, you can expect to pay between £150 and £400 per month for a full service including bookkeeping, VAT returns, payroll, management accounts, and year-end accounts.

For a multi-site operator or a hotel with accommodation, payroll, and complex VAT, fees are higher. But the savings from correct VAT treatment, efficient payroll, and better margin control will more than cover the cost.

Compare that to the cost of an HMRC enquiry. A VAT inspection triggered by incorrect food/drink classification can cost thousands in professional fees, penalties, and interest. A minimum wage investigation can run to tens of thousands. A specialist hospitality accountant is insurance against those risks.

Get started with a hospitality specialist

If your current accountant does not understand wet sales margins, tronc systems, or the VAT rules on eat-in versus takeaway food, you are paying for compliance but not for value. You need an accountant who adds to your bottom line, not just one who files your tax return.

We work with hospitality businesses across the UK. Whether you run a single pub in a market town, a group of restaurants in Manchester's Northern Quarter, or a boutique hotel in Edinburgh's Old Town, we can help.

Contact us today to arrange a no-obligation conversation. Tell us about your business and we will tell you exactly how we can help.