Tax tips to help make your hospitality business a success

What are the challenges that the hospitality industry is facing? 

There is no doubt that the hospitality industry is facing multiple, specific challenges in the UK today including: 

• Higher staff costs – the national minimum wage has risen to £10 an hour, with the national living wage for over 21s now £12.21 per hour 
• Employer’s national insurance contributions (NIC) rate up to 15% 
• Food inflation, with the UN’s FAO Food Price Index showing a 6% rise over 12 months 
• Regulatory changes including tighter security for event spaces (Martyn’s Law), the minimum alcohol unit price up to 65p in Scotland and tighter rules on employees’ tips 

Here we look at tips to help you keep your hospitality business surviving AND thriving. 

Nine practical tax tips for hospitality businesses 

1. Annual investment allowance on new appliances 

Did you know that in certain circumstances you can claim 100% of the cost of buying new plant and machinery purchases? The annual limit is £1million, so if you are making big investments – for example, major kitchen appliances – consider splitting purchases across two accounting periods to maximise use of the allowance. 

2. Capital Allowances on Refurbishments 

Refurbishing your kitchen? Overhauling your event space? You may be able to claim Structures and Buildings Allowance. This is a 3% rate, and you will need an allowance statement to claim via your corporation tax return (for companies) or self-assessment tax return (for sole traders).  

3. Consider VAT Schemes 

VAT returns and payments are usually required four times a year and can be admin heavy.  Hospitality-specific topics such as eating-in versus takeaway or taking customer deposits add to VAT complexity. 

But VAT schemes are available for smaller businesses to help lighten the financial burden. 

• VAT flat rate scheme – pay a percentage of your turnover. Your turnover cannot exceed £150,000 
• VAT annual accounting scheme – file a return and pay VAT only once a year. Your turnover cannot exceed £1.35m 
• Cash accounting scheme – pay VAT on sales and reclaim on purchases, rather than on the difference between your sales and purchase invoices 

4. How do I deal with tips? 

Since October 2024, the law states that employees must get 100% of their tips. Previous tip systems which may have deducted an admin charge are no longer compliant.  

Troncs are a common way to share tips between employees and are run by a troncmaster. If the troncmaster is separate from employer, the tronc will need its own PAYE scheme to deduct income tax from employees and pay it over to HMRC. The rules on NIC are a little more complex. 

5. Making Tax Digital and VAT 

Keeping VAT records and making VAT returns using compatible software has been mandatory for all VAT-registered businesses since 1st April 2022 under Making Tax Digital (MTD).  

TaxAssist Accountants can help you choose the best online and app-based solutions such as QuickBooks and Xero, to keep you compliant with less stress. 

6. Pre-opening costs 

For maximum tax efficiency, make sure you don't forget the costs you incurred before you started trading. 

If the ‘wholly and exclusively for the purposes of the trade’ revenue test can be met, many costs incurred when setting up your business can be relieved, if they were incurred up to seven years before you began trading link 

Capital costs before trading begins are covered by capital allowances (see above). 

7. Claim work from home expenses for sole traders 

Do you do your paperwork, invoicing, and admin tasks from home? You may be able to claim expenses for doing so. 

Sole trader? You can claim a portion of your household bills for home working e.g. internet costs. You must devise a clear way of calculating business and personal proportions to satisfy HMRC.  

Alternatively, you could use simplified expenses and claim a flat rate of expenses. Home working rates start at £10 a month, capped at a maximum of £26 a month. 

Limited companies have different rules and cannot access this tax deduction. 

8. Take advantage of Employment Allowance 

Hospitality businesses tend to need lots of employees. Did you know you could reduce your employer’s NIC bill by up to £10,500 by claiming the Employment Allowance? 

Sole traders and limited companies can qualify as long as less than half of their work is for the public sector and, if a limited company, there cannot be only a single director for whom it pays NIC. 

Haven’t claimed Employment Allowance before? The good news is you can make claims going back up to four years but watch out for limits on the size of the NIC bill in previous years. 

This allowance is claimed through your PAYE software. 

9. Business rates relief 

You could be eligible for hospitality and leisure relief which gives up to 40% off business rates for the 2025-2026 billing year. Check with your local authority if your business qualifies. 

Need more tax help with your hospitality businesses?

Looking for more support to help your hospitality business succeed? At TaxAssist Accountants we can help you stay in tip-top shape with tax advice tailored to your needs. Call us today on 01756 541005 or use our online enquiry form.   

Last updated 18 Jun 2025 | First published 18 Jun 2025

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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