Accounts and Tax guide for the hospitality industry

This comprehensive guide aims to provide hospitality businesses with essential insights into efficient accounts and tax management, ensuring compliance and optimising financial health. 

The hospitality industry 

The hospitality sector, with its unique challenges, requires a strategic approach to accounts and tax management. The hospitality industry is driven by consumer trends and behaviours. This means that it can change quickly, putting strain on these businesses.  

Understanding financial management in this sector can enhance profitability, operational efficiency and long-term success, these include: 

• Fluctuating customer demand 
• Managing seasonal staff 

The hospitality industry can be unpredictable, which can cause financial concerns for businesses. This can lead to stress for owners and anxiety for employees who rely on them for work. It may be difficult for business owners like you to stay on top of everything. Getting help from an accountant with your bookkeeping, accounts and tax can make your business more efficient. 

A proactive approach can turn these challenges into an opportunity to enhance financial health and operational efficiency. 

Understanding the hospitality sector’s financial landscape 

The financial landscape of the hospitality sector is full of peaks and troughs in demand because of seasonal variations. This affects income and cash flow, so effective financial management is essential. To ensure your business remains profitable during off-peak periods you should try to maximise income during peak times. 

By implementing key management strategies, streamlining operations, navigating tax obligations and leveraging technology, hospitality businesses can ensure financial health and compliance. 

Financial Management Strategies for the hospitality industry

Strategic financial management involves setting financial goals, projecting future financial performance, and devising strategies to achieve these objectives. 

1. Cash Flow Management: managing cash flow is vital to ensuring your business can continue during off-peak periods. Implementing strategies including careful inventory management and efficient accounts receivable processes can significantly improve your cash flow. 
2. Budgeting and Forecasting: Accurate budgeting and forecasting enables hospitality businesses to plan ahead to balance any periods of cash outflows.  
3. Cost Control: Identifying, budgeting and manging costs is fundamental. This includes direct costs related to food and beverage procurement and indirect costs such as utilities and maintenance. Regular reviews of expenses and seeking cost-effective alternatives can enhance profitability. 

Streamlining operations and spending 

You should look at ways how you can improve the efficiency of your hospitality business so that it operates as well as it can. Efficiencies may include introducing new technology and cutting out unnecessary steps in your service delivery for smoother operations. These can lead to quicker service times, fewer mistakes and happier customers. Some specific options are: 

• Introducing online check-in and check-out – your customers may expect online check-in and look for this when booking accommodation. It offers an opportunity to upsell additional extras to your customers, for example a breakfast reservation. You can also manage staff workload by putting less people on the welcome desk. This option can also reduce queues and slow check-ins for customers. 
• Introduce online reservation booking with a digital partner – using a digital partner helps reduce no-shows and ensures that you maximize your business. 
• Negotiating with suppliers – building rapport with your key suppliers is vital and can ensure you’re getting the best rates. Starting discussions with alternative suppliers will ensure you’re paying competitive rates. 
• Staff training – giving your employees appropriate training when on-boarding is crucial in a customer facing role. The service you provide to customers will determine whether you get returning trade. Non-customer facing roles may also benefit from training in their line of work. You should ask employees if they have any training requirements at any reviews you hold. 
• Reducing waste – reducing food waste, packaging and general waste improves your business’ environmental impact. It can also improve efficiencies and lower waste management costs. Customers will often look favourably on businesses that work more sustainably.
  Some examples of reducing packaging and waste are: 
• using refillable soap and shower gel dispensers 
• bulk buying cleaning products and refilling spray bottles 
• giving customers the option to use a recycling bin 
• training your team in good food preparation techniques 
• donating leftover food, or food close to its use by date 

Try to balance streamlining and cost savings with customer experience. You don’t want to adversely affect customer satisfaction levels following changes of supplier which may result in offering reduced quality. Carry out research into automation and online solutions to see what else you can automate to streamline your business. 

Managing tips, service charges and gratuities 

Knowing that tips can’t make up for the national minimum wage is important. You must pay employees the minimum wage and remember that any tips they receive are on top of this. Businesses can include tips on the payroll and tax them at source. Employees may need to report tips paid to them outside payroll to HM Revenue & Customs (HMRC). 

Businesses should clearly notify customers whether a service charge added to the bill is required or voluntary. They should have a policy for how they split these amounts, which can be easily explained to customers. 

From 1st July 2024, the Tipping Act requires employers to: 

• pass on all tips by the end of the month after the tip was received 
• ensure tips are shared in a fair and transparent manner 
• maintain a written policy on how tips are dealt with 
• maintain a record of all tips paid at their workplace and how they have been allocated. Workers have a right to request a ‘tipping record’.

Navigating your tax obligations 

Taxation in the hospitality sector can be complicated, with tax obligations including VAT, corporation tax and employment tax. Understanding these obligations and tax planning is essential for an efficient business. 

• VAT management: Value Added Tax (VAT) is a significant consideration for hospitality businesses. Ensuring accurate VAT recording and understanding different VAT rates on goods and services is crucial. The standard VAT rate applies to most goods and services and there are reduced rates and exemptions for certain goods and services. 
• Employment taxes: Hospitality businesses rely on a mix of permanent and seasonal staff, making managing employment complex. This includes understanding National Insurance Contributions (NIC), managing payroll efficiently, and complying with pension auto-enrolment obligations. Businesses must meet their National Minimum Wage obligations. The rate of minimum wage depends on age and the role the individual undertakes. Employers must manage employees' personal information well and update their pay rate when they have a birthday. Employment Allowance gives some businesses a discount on their employer NIC bill. Check to see if your business qualifies for the allowance. 
• Tax planning: Effective income and corporation tax planning can significantly impact a hospitality business's profits and tax liabilities. 
• Business rates: Councils charge commercial businesses business rates. Hospitality businesses may qualify for retail, hospitality and leisure relief, resulting in reduced charges. You should check with your local council if you think you’re eligible for relief. The level of reduction depends on whether your business is in England, Wales, Scotland or Northern Ireland. 

Implementing technology for financial management 

Online accounting software provides businesses with real-time financial insights. Technology can significantly enhance efficiency and accuracy in financial management. 

1. Accounting Software: Using modern accounting software simplifies financial record-keeping. It saves you time through increased access to automation and improves accuracy. Many accountants are software experts so reach out to them to see what online solutions they can offer. 
2. Point of Sale Systems: Cards are the dominant payment method in the UK, with 85% of spending in the UK by card. Businesses can enhance the customer payment experience by using a sophisticated Point of Sale (POS) system. 
3. Payroll and HR Software: Automated payroll systems ensure compliance and accuracy in your data. Some payroll software also offer human resources (HR) solutions, such as managing staff leave. The complexities of payroll and HR mean it is sensible to consider outsourcing this service. You may find the time-savings outweigh any additional costs. 

How TaxAssist Accountants can help 

We are available to help you navigate hospitality finance and can help you with effective planning, forecasting and budgeting. Get in touch for a free, no obligation meeting. Call us today on 02039443759 or complete our online contact form to make that first step. 

Date published 8 Mar 2024 | Last updated 12 Nov 2024

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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