Accounting for Pubs and Bars

Running a pub or bar in the UK requires careful financial management. Between VAT on every pint, alcohol duty, tight margins on wet sales, the costs of a tied lease and the challenges of managing cash-heavy operations, the accounting demands on publicans are substantial.

Whether you operate a free house, a tied pub under a pub company (pubco), or a managed house, this guide covers the accounting essentials specific to your trade.

Business structures for pubs

Tied vs free house

This distinction fundamentally affects your accounting:

Tied house – You lease the pub from a pub company and are contractually obligated to buy some or all products (beer, spirits, soft drinks) from them or their nominated suppliers. Tied prices are typically higher than open-market prices, but your rent is usually lower to compensate.

Free house – You own or lease the premises independently and can buy products from any supplier at the best price you can negotiate.

The Pubs Code (introduced 2016) gives tied tenants of large pubcos the right to request a Market Rent Only (MRO) option at certain trigger points. Understanding this option and its financial implications requires careful analysis of your accounts.

VAT on pub sales

All alcoholic drinks are standard-rated at 20%. But food complicates matters.

VAT treatment of common pub sales

If your pub serves food, you need your till system to correctly code items by VAT rate. Errors here accumulate quickly and can result in significant over- or under-payment of VAT.

Filing VAT returns

With almost all pub income being standard-rated, your VAT returns are relatively straightforward compared to restaurants. However, ensure you are reclaiming input VAT on all eligible purchases – equipment, professional fees, marketing, repairs and maintenance.

The Flat Rate Scheme

Pubs and bars can use the Flat Rate Scheme if turnover is below £150,000. The relevant category is pubs at 6.5%. This is one of the lowest flat rate percentages and can be advantageous for pubs with low input VAT. Run the numbers both ways before committing.

Alcohol duty

Alcohol Duty is paid by the producer or importer, not the publican. However, it is built into the wholesale price you pay, so understanding it helps with pricing decisions.

The Small Producer Relief scheme benefits small breweries and cider makers. If you run a brewpub, you may qualify for reduced duty rates.

Stock control

Stock management is critical in pubs. Wastage, pilferage and over-pouring are the three biggest threats to wet margins.

Target margins

If your actual margins are below these targets, investigate. Common causes include:

• Over-pouring – particularly with spirits and draught beer
• Waste – beer line cleaning losses (typically 2-3% of draught throughput), out-of-date stock
• Pilferage – staff drinking, giving away drinks, not ringing up sales
• Incorrect pricing – not updating prices when wholesale costs increase

Stocktaking

Conduct a full stock count at least monthly. For high-value items (spirits, premium beers), weekly checks are advisable.

Compare your actual gross profit against your theoretical gross profit (calculated from purchase prices and selling prices). The difference is your stock deficit, which represents waste, theft and unrecorded sales.

Business rates

Business rates are a significant cost for pubs, based on the rateable value of your premises.

Reliefs available

• Small Business Rates Relief – if your rateable value is below £15,000, you pay reduced or zero rates. Below £12,000, you pay nothing
• Retail, Hospitality and Leisure Relief – the government has periodically offered 75% relief for eligible hospitality businesses (check the current year’s relief)
• Rural Rate Relief – if you are the only pub in a rural settlement with a population under 3,000, you may qualify for mandatory 50% relief (and discretionary 100%)

Challenging your rateable value

If you believe your rateable value is too high, you can challenge it through the Check, Challenge, Appeal process with the Valuation Office Agency. Pubs are valued based on their fair maintainable trade (FMT), so if your trade has declined, a reduction may be justified.

Cash handling

Pubs still handle more cash than most businesses, particularly in rural areas or for wet-led establishments.

• Cash up every shift – count the till, compare to the POS report
• Investigate discrepancies immediately – even small daily shortages add up
• Bank cash frequently – do not accumulate large amounts
• Record all cash purchases – petty cash for cleaning supplies, emergency repairs, local deliveries
• Use your POS system to track every sale – do not rely on handwritten records

HMRC pays close attention to cash-heavy businesses. Consistent, accurate records are your best defence against an enquiry.

Staffing and payroll

Pubs face specific payroll challenges:

• Split shifts (lunch and evening service with a gap)
• Zero-hours contracts for casual bar staff
• National Minimum Wage compliance, including for live-in staff
• Accommodation offset – if you provide housing for staff, the offset (£9.99 per day in 2024/25) is the maximum you can deduct from wages for NMW purposes
• Tips – if customers leave tips, the same rules apply as for restaurants (Employment (Allocation of Tips) Act 2023)

Key expenses to track

Wet costs (drinks)

• Beer (draught and bottled)
• Wine and champagne
• Spirits
• Soft drinks
• Mixers and garnishes
• Gas (CO2 and mixed gas for draught)
• Line cleaning chemicals

Dry costs (food, if applicable)

• Food ingredients
• Cooking oils and condiments
• Disposables (takeaway containers, napkins)

Operating costs

• Rent (to pubco or landlord)
• Business rates
• Utilities (electricity, gas, water)
• Entertainment licence fees
• Music licence (PPL/PRS – approximately £1,000-£2,000 per year depending on size)
• Sky Sports / TNT Sports subscriptions (commercial rates are significantly higher than domestic)
• Gaming machine licences
• Insurance (employers’ liability, public liability, buildings, contents, business interruption)
• Cellar equipment maintenance

Gaming machines

If you have gaming machines, there are specific accounting and licensing requirements:

• Category C machines (max £1 stake, £100 prize) – up to 2 machines allowed without a premises licence under the Gaming Act
• Category D machines (low stake, low prize) – no limit on numbers
• You need a gaming machine permit from your local authority for more than 2 machines
• Machine Supplier arrangements vary – you may own the machines outright or have a profit-share arrangement with the machine supplier
• Machine income is standard-rated for VAT
• Account for machine income gross (total takings) and the payout or supplier share as an expense

Seasonal cash flow

Most pubs experience significant seasonal variation:

• Summer and Christmas/New Year are typically the busiest periods
• January and February are often the quietest
• Major sporting events (World Cup, Euros, Six Nations) drive wet sales
• Weather has an outsized impact on trade, particularly for pubs with beer gardens

Build cash reserves during peak periods to cover the quiet months. Your VAT returns will reflect this seasonality – ensure you have the cash to pay the VAT bill even during a slow quarter.

Common accounting mistakes in pubs

• Not tracking stock losses – unmeasured waste and pilferage destroy margins
• Ignoring business rates relief – many pubs qualify for relief they are not claiming
• Under-claiming input VAT – capital expenditure on refurbishments, equipment and cellar cooling can generate significant VAT reclaims
• Not separating wet and dry sales – you cannot manage margins if you do not know what each category earns
• Failing to account for pubco rebates – some tied agreements include retrospective volume rebates that need to be accrued
• Not budgeting for seasonal variation – a flat monthly budget ignores the reality of pub trade