Restaurant accounting basics for new UK restaurant owners

Opening a restaurant is hard. The money side is often harder than new owners expect. There are tax rules to be aware of. There are strict rules on how tips are shared with staff. There is cash and card revenue coming in every day, and there are suppliers, staff, and stock to pay for.

This article gives a starter overview of the financial topics you should be mindful of if you’re starting a new UK restaurant, pub, or cafe. It points to the things you can set up yourself. And it flags the topics worth taking to an accountant. It is written for owners launching their first restaurant, pub, or café.

Important: this article is for general information and gives a high-level overview of financial topics new restaurant owners often deal with. Rules change, and your situation is unique. For decisions about your business, speak to a qualified accountant or other professional adviser. This article is not intended to constitute legal, accounting, financial or tax advice, and should not be relied upon as such. 

Key takeaways

• The accounting side of a restaurant business covers a number of areas: tracking what comes in and out, tax, staff and tips, and the practical tools that make it manageable.
• Opening a business bank account is one of the most useful things  you can do before you start trading. It keeps records clean and is something you can sort out yourself today.
• Tax rules for hospitality businesses are detailed and change often. Speak to a qualified accountant about VAT, business structure, payroll, and tips.
• Recent UK rules require restaurants to pass 100% of tips to staff and keep a written tips policy. A payroll specialist can help you set this up.
• Get the basics right first: a business bank account, accounting software, and a relationship with an accountant. The rest gets easier from there.
  

What does restaurant accounting cover?

Restaurant accounting is the work of tracking money flowing through a food business and reporting it to HMRC. For a small restaurant, it usually covers four broad areas.

Tracking sales and costs. Daily takings from card, cash, and digital payments need recording. Costs such as food, drink, rent, utilities, and wages need recording too. The aim is a clear picture of what you made and what you spent each week.

Tax obligations. UK restaurants face several tax rules. VAT on food and drink is not one single rate. There is also Income Tax or Corporation Tax depending on your business structure, and PAYE if you employ staff. Rules differ by structure, by what you sell, and sometimes by where you trade. An accountant is the right person to walk you through this in detail.

Staff pay and tips. Payroll has its own set of rules, and tips have a separate set on top. Recent UK legislation changed how restaurants must handle tips. A payroll specialist or accountant is well placed to help here.

Practical tools. Most small restaurants use a combination of a business bank account, accounting software, a till or Point of Sale (POS) system, and an accountant. Getting these set up early can save significant time later on.

The rest of this article covers the practical setup you can handle yourself. It also signposts the topics worth discussing with a professional.

One of the most important things to set up before you open your doors: a business bank account

A business bank account is one of the most important set up decisions you face. It also has the clearest answer. And it is one you can sort out today.

Why a business bank account matters

A business bank account keeps your business money separate from your personal money. For limited companies, this separation is required, as a company is a separate legal entity from its owners: a company's finances must be kept apart from its owners' personal finances.

Sole traders can technically use a personal account. In practice, this is a common cause of bookkeeping problems. It also makes life harder for an accountant or HMRC in the event of a check. If you have a limited company, a business account is a requirement.

A business account also lets you take card payments through merchant services. It lets you pay suppliers cleanly. And it lets you process refunds in a way personal accounts often don't allow.

Why this can be harder than expected

Getting a business bank account is not always quick. Some high-street banks take weeks to open one. Some digital banks reject first-time business owners or applicants with limited credit history. Hospitality is sometimes considered a higher-risk sector, which adds friction.

If you need an account in a hurry, look for a provider with a quick online application. Check eligibility rules carefully. And look for a provider willing to take on first-time business owners.

Other practical things to put in place

Alongside a bank account, a few other tools form the backbone of running a restaurant's money. None of these need accounting expertise to set up. Each one is worth getting right early.

Accounting software

Many small UK restaurants use cloud accounting software such as Xero, QuickBooks, or FreeAgent. Software connects to your bank account. It handles VAT records. And it works with Making Tax Digital rules. Vendors offer free trials so you can compare them. Your accountant may have a preferred package.

A till or Point-of-Sale (POS) system

Your till records every sale and applies the right VAT treatment. A modern POS system also splits payments by card, cash, and digital. It can export sales data into your accounting software. This saves significant time on manual entry. Most POS vendors offer hospitality-specific packages.

A relationship with an accountant

An accountant is often the most valuable professional relationship a new restaurant owner has. They can help you choose the right business structure. They can register you for tax correctly. They can set up payroll. And they handle year-end accounts. Costs vary by area and the complexity of your business. Get two or three quotes before you commit.

Some restaurants use a bookkeeper for month-to-month tasks and an accountant for year-end and tax work. Your accountant can advise on whether this split makes sense for your business.

HMRC registration

You will need to register your business with HMRC. The details of how, when, and what you register for depend on your structure and what you sell. An accountant can guide you through this. You can also find current guidance on GOV.UK.

Tax topics to discuss with an accountant

Restaurants face a few tax topics that warrant professional advice. This section names them and explains why each matters for hospitality. It does not give thresholds, rates, or step-by-step rules. These change and depend on your situation. Speak to a qualified accountant for advice on any of these.

VAT on food and drink

VAT for restaurants is not one rate. Hot food, cold takeaway food, food eaten on the premises, and alcohol can all attract different VAT treatments. The same item can have a different VAT rate depending on how it is sold. This catches out a lot of new owners. HMRC's VAT Notice 709/1 sets out the rules in detail. An accountant can help you apply them to your menu correctly. There is also a turnover threshold above which businesses must register for VAT. Check current rules on GOV.UK or with your accountant.

Business structure (sole trader or limited company)

Most UK restaurants are set up as either sole traders or limited companies. The choice affects how you are taxed. It affects your personal liability if things go wrong. It affects the records you must keep, and the cost of running the business. There is no single right answer. The right structure depends on your situation, your plans for the business, and your appetite for extra paperwork. An accountant is the right person to advise on this decision.

Payroll and PAYE

If you employ staff, you will need to operate PAYE (Pay As You Earn) and report wages to HMRC. There are also rules on minimum wage, National Insurance, pensions auto-enrolment, and holiday pay. Payroll software, a payroll bureau, or an accountant can handle the process for you.

Tips and service charges

The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024. Under the rules, UK restaurants must pass 100% of tips to staff without deductions. You must also have a written tips policy that staff can see, and keep records for at least three years. There are also separate rules on how tips are taxed. Whether National Insurance applies depends on how the scheme is run. Speak to a payroll specialist or accountant to set up your tips arrangement correctly.

Making Tax Digital

Making Tax Digital is HMRC's rule requiring businesses to keep digital records and file taxes using compatible software. It already applies to VAT-registered businesses and is being introduced for sole traders in stages, based on income. Check GOV.UK for the current thresholds and dates that apply to you. Whatever your income, keeping digital records from the start makes it easier when the rules reach you.

Common pitfalls to be aware of

New restaurant owners often run into a handful of avoidable problems on the money side. None of these require accounting expertise to avoid. They just need to be on your radar from day one.

• Mixing personal and business spending. Using the business account for personal items, or vice versa, makes the books harder to follow. It also makes life harder for an accountant at year-end.
• Not checking till totals against the bank. If your till total and your bank deposits don't tally, small errors compound. Reviewing the figures regularly catches problems early.
• Forgetting to set VAT aside. VAT collected from customers is not yours to spend. Many owners keep a separate account or savings pot for VAT to make sure they have it when it's due.
• Losing receipts. Digital photos of receipts are generally accepted by HMRC if they are clear and kept for the required retention period. Without receipts, expense claims are harder to prove in an HMRC check.
• Treating tips like wages. Tips have their own tax and legal rules. Treating them like normal wages can cost you and your staff money. More importantly, it may also not meet the rules of the Employment (Allocation of Tips) Act 2023. A payroll specialist can set up your tips scheme correctly.

Apply for a business account for your restaurant in minutes.

Zempler Bank supports restaurants, cafes, pubs, and more with straightforward banking, fast setup and built-in tools that help keep cashflow running smoothly. Apply online in minutes, with a free Business Go tier at £0 a month. We’re a fully regulated British bank, so eligible deposits are FSCS protected up to £120,000.

Zempler Bank account features designed to support restaurant owners:

• Apply online in minutes, with a straightforward setup process
• Takes cash deposits, which matters when you have daily cash takings
• Cashback on eligible card spending, which can help on supplier and stock costs (available on our Business Extra & Business Pro accounts).
• Eligible deposits covered by the Financial Services Compensation Scheme (FSCS) up to £120,000 per eligible customer

👉 Learn more about our business bank accounts for hospitality.