Advice: Don’t get tripped up by the tax tangle

Running a bar, café or restaurant has never been more of a balancing act.

The reduced VAT rate that helped many venues in the hospitality sector during lockdown has now returned to the standard 20%, heaping pressure on businesses struggling with inflation and demand for increased salaries.

Keeping staff and customers happy is key, so a good grasp of pricing, budgeting and the demands of the UK tax system are critical to ongoing success. Here’s a quick guide on how to keep your people, regular guests and the taxman happy.

Stay ahead of the changes

Last year saw some significant shifts in the tax landscape which could affect how much – or how little – you pay on the three main ones.

If you trade through a limited company and you are lucky enough to make more than £250,000 in profits, you’ll face a 25% Corporation tax rate, while smaller businesses with profits under £50,000 will continue to pay 19% with a sliding scale in between.

The VAT rate returning to 20% from the pandemic rate of 12.5% is a blow to the sector, prompting some in the industry to call for a drastic cut to stimulate venues economically and socially.

On the upside, a proposed increase in National Insurance Contributions was reversed, but as with any government policy that can change. That’s why it’s wise to stay on top of the current rates and thresholds.

Don’t miss the deadlines

1 January 31: This is the big one. Your self-assessment tax return must be filed by this date and any tax you owe needs to be paid.

2 Quarterly VAT returns: Make sure you’re filing these on time. Missing a deadline can result in penalties.

3 Monthly PAYE payments: Due on the 22nd of each month (or the 19th if you’re paying by cheque). Keeping up with this ensures your employees’ taxes are handled correctly.

A date for your diary

The beginning of the financial year for most businesses is 6 April, the day you can start filing personal and corporate tax returns for the previous financial year.

The big deadline is 31 January of the next calendar year, meaning for the 2023-2024 financial year, the absolute latest you can file your taxes online is 31 October this year on paper or 31 January 2025 online.

The later January date is also the deadline for the first payment on account for the previous financial year’s taxes for your self-employed staff – so make sure to remind them.

Forward-thinking businesses can file tax returns automatically and more easily if they have access to accounting software such as Quickbooks, Sage or Xero.

Are you a limited or sole trader?

Corporation Tax is paid by Limited businesses on the profits they make after costs and expenses. These need to be shown in the company accounts and tax returns, whereas sole traders are exempt.

If you’re liable for Corporation tax, you must file an account including important information that follows strict guidelines, including a balance sheet and profit and loss account.

The balance sheet is an overview of all you’ve made, own and owe as well as your kit and equipment… but don’t forget that tech gear depreciates over time so a good accountant can save you money there.

The profit and loss account details what you’ve spent on wages and payroll taxes over the year against income such as sales and investments.

Again, this kind of information can be easily stored as you go along with good accounting software which will save you time and money.

Many happy returns

Once your profit and loss are sorted, you can start filling in your tax return which gives HMRC information on trading turnover, profits or losses. It can include any losses you want to be considered from previous years. This will help you calculate your net trading profit.

It’s not all bad news though. This is the part where you can make deductions for expenses, capital allowances for running cars and equipment and charity donations. Uniforms, work clothing and tools are also allowable, so make sure you claim.

Keep an eye on the HMRC website for updates that might affect your business and consider attending their webinars specifically designed for the hospitality sector.

Know your VAT

If your business has a annual turnover of more than £90,000 you must register for VAT and keep a record of and add VAT
to every transaction. You can also claim back VAT on business purchases.

Most venues in the hospitality industry will be providing both zero-rated and standard-rated goods.

When generating receipts and invoices, show your VAT number and information and give the date when the transaction took place.

The three rates of VAT are 0%. reduced rate of 5% and standard rate of 20%.

1 All food and drink is standard-rated when consumed on the premises.

2 Cold prepared food such as sandwiches and salads are zero-rated when takeaway, but standard-rated when eaten-in. But crisps, sweets and bottled drinks are always standard-rated.

3 Hot food is almost always standard-rated unless heated up in-store and left to cool, in which case it is zero-rated. Any food that is kept hot is also standard-rated.

If in doubt, seek expert advice

Straying outside the law, even if you didn’t mean to, can carry heavy penalties and with corporation tax forming a sizeable chunk of your trading costs it’s best to ask for help if you’re unsure about efficient tax planning.

Corporation Tax | VAT | PAYE for Employers | Introduction to business rates

Tax Tips

A simple guide to stay on the right side of the taxman… and protect your team

1 Get relief: Make sure you’re claiming any reliefs on business rates. Regardless of the size of your premises, you might qualify for significant savings.

2 Annual Investment Allowance (AIA): Planning on upgrading your kitchen equipment or refurbishing the dining area? Deduct the full cost of these investments up to £1 million from your profits as part of your Annual Investment Allowance, and cut your tax bill.

3 Take care of your team: Make sure your Pay As You Earn (PAYE) system is correctly calculating tax and NICs for your staff to avoid penalties and keep them happy, knowing their taxes are in order.

4 Employee benefits: If you provide meals, transport or other perks, check whether they’re taxable. Some benefits might be tax-free but some need to be reported.

5 Stay on top of things: Keeping your books in order is a year-round job. Cloud-based accounting software can simplify this process, ensuring you’re ready for the January deadline without a last-minute panic.

6 Quarterly checks: Schedule quarterly reviews of your finances to stay on top of your tax liabilities and make any adjustments.

7 Manage your cash flow: Avoid seasonal shocks by setting aside funds for tax payments as you go along.

8 Getting employee tax right: Your staff are the heart of your business so your payroll system should be submitting RTI reports to HMRC every time you pay your employees.

9 Pension auto-enrolment: Make sure the crew are enrolled and your contributions are made on time. This isn’t just a legal requirement – it’s a crucial part of looking after your team.