Accounting software for UK restaurants and hospitality
Hot vs cold VAT split, Flat Rate Scheme for catering (12.5%), alcohol licensing, tronc/tipping accounting, EPOS integration and HMRC MTD VAT — for cafes, restaurants, pubs and dark kitchens.
UK hospitality is the most VAT-complex retail vertical in Britain. The standard 20% VAT applies to eat-in food, hot takeaway, and alcohol — but cold takeaway food (sandwiches, salads, ice-cream tubs intended to be eaten away from premises) is zero-rated. A single transaction can mix all three (a customer buying a hot coffee, a cold sandwich, and a hot pasty for takeaway), and each line gets a different VAT rate. The Flat Rate Scheme (FRS) for catering simplifies this to a flat 12.5% on gross turnover for businesses below £150K turnover, but trades off input VAT recovery. This page covers the full hospitality accounting stack including alcohol licensing, tronc accounting, and EPOS integration.
UK restaurants & hospitality at a glance
| Field | Value |
|---|---|
| Authority | HMRC (VAT) + local council (alcohol licensing) |
| Standard VAT rate | 20% Eat-in, hot takeaway, alcohol, services. |
| Zero-rated | 0% on cold takeaway food Sandwiches, cold drinks, ice cream taken away. |
| FRS catering rate | 12.5% on gross turnover For businesses under £150K — no input VAT recovery. |
| VAT registration threshold | £90,000 (from April 2024) |
| EPOS systems supported | Square, Lightspeed, Toast UK, Vita Mojo, Centegra, others |
Rates and thresholds verified against HMRC and gov.uk as at 2026-05-18. Re-verify after each Autumn Budget and Spring Statement.
The hot-vs-cold VAT split — and why every till receipt is a tax determination
VAT Notice 709/1 sets out the rules. Food consumed on premises is 'a supply in the course of catering' — always 20% standard-rated regardless of temperature. Hot takeaway food (pies, pasties, hot drinks, anything 'above ambient temperature when delivered' and intended to be eaten while still hot) is 20%. Cold takeaway food (sandwiches, cold pies, cold drinks, ice cream tubs intended to be eaten elsewhere) is 0% zero-rated. Alcohol is always 20%.
Every till receipt has to determine the rate at the line level. A customer ordering a hot coffee (20%), a cold sandwich for takeaway (0%), and a slice of cake for eat-in (20%) gets three different VAT lines on one transaction. EPOS systems (Square for Restaurants, Lightspeed, Toast UK, Vita Mojo) tag each menu item with a VAT category; HelloBooks pulls the daily Z-report (or itemised settlement file) from the EPOS integration and posts the right VAT split to GL automatically.
Flat Rate Scheme for catering — the simplicity vs ITC trade-off
The Flat Rate Scheme (FRS) for catering applies a 12.5% rate on VAT-inclusive turnover (effective 10.0% of net), regardless of the underlying mix of 0% / 20% sales. Eligibility: VAT-registered businesses with turnover under £150,000 excluding VAT (the threshold to JOIN; you can stay until turnover exceeds £230,000). The catering FRS rate is 12.5% — higher than retail (7.5%) reflecting the higher VAT-rateable mix of restaurant sales.
FRS trade-off: you charge 20% to your customer on standard-rated supplies but only pay 12.5% to HMRC — keeping the 7.5% spread as 'profit'. But you cannot reclaim input VAT on stock, supplies, equipment, or services (except for single capital items above £2,000 inc VAT). Whether FRS makes sense depends on your input VAT mix — high-stock-cost businesses (like coffee shops with significant bean and milk purchases) often lose out on FRS; low-input-VAT businesses (like dark kitchens with mostly labour cost) benefit. HelloBooks runs the FRS-vs-standard comparison every quarter from your actual ledger.
Tronc, tips, and alcohol licensing accounting
Tronc is the formal name for a tip-distribution scheme under PAYE rules (Income Tax (Earnings and Pensions) Act 2003 s.554). Properly run, tronc payments to staff are exempt from employer NIC (saving 13.8% on tip income) provided a designated troncmaster controls the distribution and HMRC is notified. HelloBooks handles tronc registration, weekly distribution calculations, and the segregated tronc bank account if you operate one. Tips paid through card machines (UK service charges) are also a regulatory area — the Employment (Allocation of Tips) Act 2023 effective October 2024 mandates 100% pass-through to workers within one month.
Alcohol licensing under the Licensing Act 2003 requires a Premises Licence and a Designated Premises Supervisor with a personal licence. HelloBooks doesn't manage the licensing application itself, but tracks alcohol-specific revenue separately for VAT, monitors the licence renewal date (typically 12-month cycle), and supports the underage-sale Challenge 25 documentation that licensing officers can request during inspections.
Questions UK restaurants & hospitality ask
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