Tax Consideration for Food & Beverage Businesses in UK: All You Need to Know
What is F&B?
The food and beverage services are an integral part of the hospitality industry. It involves the production, processing, distribution and sale of food and beverages. The food and beverage industry includes restaurants, cafeterias, fast-food joints, pubs, food manufacturing, catering, food transportation and more. The food and beverage industry in the UK is one of the country’s most lucrative sectors in terms of turnover, valued at approximately £104.4 billion as cited on UK government website. According to food and drink federation, the UK’s food and beverage industry is larger than automative and aerospace industries combined as it contributes to 20% of the UK’s total manufacturing output.
Challenges in Compliance for Food and Beverage Businesses
In 2024, the UK’s food and beverage sector finds itself in a complex ever-changing landscape characterized by significant challenges and rapid transformations. Due to its complex nature, the food and beverage industry in the UK faces intricate tax and compliance challenges.
Understanding the tax obligations can help F&B businesses streamline their finance function. In this blog, we’ll provide a brief guide on navigating the tax landscape in the food and beverage sector in the UK and how business can ensure compliance with the assistance of tax professionals from the best accounting firms in London, UK.
Taxes for Food and Beverage Businesses
Here is what food and beverage businesses in the UK need to know about the taxes imposed;
Value Added Tax (VAT)
The Value Added Tax is the consumption tax on goods and services, imposed at each value-adding stage of the supply chain. Value Added Tax (VAT) is levied on most goods and services sold in the UK and it is charged as a percentage of the price paid by the consumer. It is crucial for food and beverage businesses in the UK to understand the nuances of Value Added Tax (VAT). The standard rate of Value Added Tax (VAT) in the UK is 20%. The basic food items sold for human consumption are zero-rated which means they are subject to 0% VAT. To help the businesses recover from the impact of economic flux in past recent years, the government of UK has maintained the reduced rate of tax at 5%.
Corporate Tax
The food and beverage businesses in the UK that are structured as limited companies are subject to corporate tax on their profits. The corporate tax rate in the UK is generally 25% on profits of more than GBP 250,000. For the UK resident companies with profits below GBP 50,000 a lower tax rate of 19% is applicable. Following key deductions are allowed;
- Cost of goods sold
- Rent and utilities
- Staff wages
- Marketing and advertising costs
Income Tax
The food and beverage businesses based on sole traders or partnerships, are subject to income tax instead of corporate tax. Following tax rate is charged depending on the total income:
- Basic Rate (20%)
- Higher Rate (40%)
- Additional Rate (45%)
Expenses allowed may include cost of goods sold, rent and utilities, staff and wages, marketing and advertising costs.
PAYE and NIC
Pay as you earn (PAYE), is the system by which the employer and pension provider deduct Income Tax and National Insurance Contribution before paying wages to employees. Even though employees pay a certain threshold of NIC, employers are also required to pay NIC on their employee earnings. Being an employer in the food and beverage business in the UK, it is crucial to understand NIC obligations to budget your payroll costs. The rates of NIC payable vary with respect to the type of employment and income of the employee.
Tax and Compliance Requirements
It is essential for the food and beverage businesses in the UK to comply with tax regulations. Here is all you need to know about tax and compliance requirements for the food and beverage businesses in the UK.
VAT Registration
The food and beverage businesses in London, UK with turnovers of more than £85,000 are required to register for VAT. This registration allows reclamation of VAT on business expenses that may affect the bottom line.
VAT Returns
After registration, food and beverage businesses are required to charge Value Added Tax (VAT) on eligible sales and submit VAT returns regularly. Tax professionals from the best accounting firms in the UK can provide assistance in filing VAT returns regularly. The standard VAT scheme requires businesses to file their VAT returns either quarterly i.e. 31 January, 30 April, 31 July, 31 October, or annually. VAT returns are required to be submitted electronically through HRMC website or as per MTD (Make Tax Digital) regulations. The deadline for quarterly return is usually one month and seven days after the end of each VAT quarter. The annual returns are due typically one month after the end of the accounting year.
Corporation Tax Returns
For food and beverage businesses operating as limited companies in the UK are required to file corporation tax returns regularly. These returns must be filed within 12 months after the end of the accounting period and paid within 9 months and 1 day after the accounting periods ends. The food and beverage businesses may also be subject to tax reliefs such as research and development tax credits or annual investment allowance subject to certain conditions.
PAYE & NIC
In order to operate PAYE, food and beverage businesses are first required to register themselves as employers with HMRC and then choose a payroll system that complies with HMRC regulations. Employers may opt for monthly or quarterly reporting and are required to submit PAYE information to HMRC in real-time along with the full-time submission report which is sent to HMRC every time employees are paid. Monthly full-time submission report must be submitted on or before each payday. The due date for the submission of PAYE and NIC payment is usually 22nd of the month if paying electronically or 19th if paid by post. Given the complexities of payroll and tax regulations, food and beverage businesses may acquire payroll professionals from the best accounting firms in the UK.
Common Tax Mistakes to Avoid
As a business operating in the food and beverage industry in London, UK, it is crucial to ensure compliance and avoid errors and omissions. Below is the list of common mistakes that are likely to occur and must be avoided.
- Incorrect VAT classification
As a business operating in the food and beverage industry in the UK, it is imperative to ensure accurate VAT classification for the products and services to avoid issues with tax authorities.
- Late submissions
It is crucial for the food and beverage businesses to ensure timely submission of returns and payments to avoid penalties and inconvenience.
- Incorrect Calculations:
Accurate calculations must be ensured for authentic return filings, as errors could eventually lead to penalties.
- Adequate Record Keeping
It is important for the food and beverage businesses to maintain records of all the relevant invoices and receipts for any potential VAT reclamation and deductions allowed. Proper documentation is important for audit and compliance as well.
Relevant UK Tax Authorities
For the purpose of tax collection and administration following tax authorities in the UK are involved;
- HMRC
His Majesty’s Revenues and Customs (HMRC) is the national tax authority of the UK entitled to the collection and administration of all direct and indirect taxes. The food and beverage businesses in the UK must comply with the regulations of HMRC.
Seeking the Accounting Firm’s Services in the UK for F&B Tax Compliance
The F&B businesses can acquire services from the best accounting firms in the UK to ensure compliance with tax regulations. The key services that these businesses could avail include;
- Tax advisory services to ensure compliance with tax regulations and for accurate timely submission of tax returns.
- Bookkeeping and Financial Reporting to maintain accurate financial records including sales, expenses and purchases.
- Payroll services for accurate real-time reporting to HMRC and managing payroll to ensure compliance with PAYE and NIC payment regulations.
- Audit & Assurance services for internal control assessment and ensuring accuracy of financial statements in accordance with the accounting standards.
Final Words
Although the tax landscape in the food and beverage businesses might be complicated but comprehensive understanding of key considerations helps businesses manage their financial obligations effectively. Consulting accounting firms in the UK are important to seek services for food and beverage businesses and with the right approach you can focus on core task i.e. creating exceptional food and beverages!
About Us
Sidra Salman & Co is a dedicated accounting firm based in the UK, specializing in providing comprehensive accounting and tax services to meet the unique needs of food and beverage businesses. With a deep understanding of the industry, we are committed to helping our clients navigate the complexities of financial management and tax compliance.