Opening a restaurant, café or bar

Sole trader or limited company

A restaurant, café or bar can trade as a sole trader, a partnership or a limited company. A sole trader is taxed on the business profit through self assessment, whether or not the money is drawn out. A limited company is a separate legal person: it pays corporation tax on its profit, and the owners pay income tax on what they take out as salary or dividends.

GOV.UK puts the main legal difference this way: a limited company's owners "are responsible for business debts only up to the value of their financial investment". A company has more filing to do: accounts to Companies House each year and a Company Tax Return to HMRC. For 2026/27, corporation tax is 19% on profits under £50,000 and 25% on profits over £250,000, with marginal relief between the two.

The choice affects how the opening losses are used, how the owners are paid, and what the business has to publish. Make it before signing the lease and the supplier accounts, because those contracts are signed in the name of whoever is trading.

Licences and food registration

In England and Wales a premises licence from the licensing authority, usually the local council, is needed to sell or supply alcohol on a permanent basis. Every sale of alcohol must be authorised by a personal licence holder. The designated premises supervisor, who has day-to-day responsibility, must hold a personal licence. Applicants for a personal licence must be 18 or over and usually need an accredited qualification.

Selling hot food or hot drink between 11pm and 5am is late night refreshment, and it is licensable too, whether or not you sell alcohol. Regulated entertainment can also need a licence. A one-off event for fewer than 500 people lasting no more than 168 hours can run under a temporary event notice.

A food business must register with the local authority at least 28 days before it starts trading. This applies in England, Wales and Northern Ireland. Scotland has its own guidance, and Scotland and Northern Ireland have their own licensing regimes.

Registering as an employer

You must register with HMRC as an employer before the first payday, and not more than 2 months before you start paying people. HMRC sends the employer PAYE reference by letter. From the first payday, pay and deductions are reported to HMRC on or before each payday, and the PAYE and National Insurance are paid by the 22nd of the following tax month.

Three other duties start with the first employee:

• Employers' liability insurance, from an authorised insurer, covering at least £5 million. GOV.UK says you can be fined £2,500 for every day you are not insured as the law requires, and £1,000 if the certificate is not displayed where staff can see it.
• Workplace pension duties, which begin on the day the first member of staff starts work. See the auto-enrolment guide.
• A right to work check on every new starter before they begin. See the right to work guide.

From April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour, £10.85 for 18 to 20-year-olds and £8.00 for under-18s and apprentices. Employer National Insurance is 15% on pay above £5,000 a year per worker, and the £10,500 Employment Allowance comes off the bill for employers who can claim it. Tips and service charges do not count towards minimum wage pay.

VAT registration

A business must register for VAT when its taxable turnover for the last 12 months goes over £90,000, or when it expects to go over £90,000 in the next 30 days alone. Taxable turnover includes zero-rated sales, so cold takeaway food counts towards the threshold. Registration is due within 30 days of the end of the month in which the threshold was passed, and the effective date of registration is the first day of the second month after that.

A café that goes over the VAT threshold in its eleventh month

1. 1 February 2026The café opens and takes £9,000 a month in taxable sales, eat-in and takeaway together.
2. 30 November 2026Ten months of trading: £90,000 in total, level with the threshold but not over it.
3. December 2026Sales for the twelve months pass £90,000 during the month.
4. 30 January 2027The last day to apply to register for VAT.
5. 1 February 2027The effective date of registration. VAT is charged on sales from this day.

Once registered, food and drink eaten on the premises carries VAT at 20%, as does hot takeaway food. Cold takeaway food is zero-rated unless it is a type that is always standard-rated, such as crisps, sweets and bottled water. The till needs an eat-in and a takeaway button from the first day. More in VAT on eat-in and takeaway food.

You can register before you reach the threshold. A business that spends heavily on its fit-out before opening can reclaim the VAT on qualifying spending on its first return once registered, and from the same date it charges VAT on its sales. The timing of registration affects cash in the first months.

VAT on the fit-out before registration

VAT paid before registration is not input tax, but HMRC lets you treat it as input tax if you meet the conditions in section 11 of VAT Notice 700. For goods, they must have been supplied to the business not more than 4 years before registration, and you must still hold them, with a stock account showing what was bought and when. For services, they must have been supplied not more than 6 months before registration. VAT on goods that were used up before registration cannot be claimed.

VAT on spending before that registration date

• Kitchen equipment and furniture bought January 2026, still in use£6,000.00
• Accountant's and solicitor's fees invoiced September 2026£600.00
• Shop-fitting labour invoiced March 2026, more than 6 months before 1 February 2027£3,000.00
• VAT claimed on the first return£6,600.00

A company can also recover VAT on spending before it was incorporated, under section 11.4 of the same notice, if the goods or services were bought for the company and the other conditions are met. Keep every invoice from the build in the company's name where you can.

Business rates

In England a hospitality property that qualifies pays a lower multiplier from 1 April 2026: 38.2p in the pound where the rateable value is below £51,000, and 43.0p above that. Small business rate relief applies where a business uses one property with a rateable value below £15,000. There are no rates at £12,000 or less, and the relief tapers to nothing between £12,001 and £15,000.

A café with a rateable value of £13,500 works out at £13,500 × 38.2p = £5,157 before relief. Relief at that value is 50%, so the bill is £2,578.50 for the year, before any transitional relief. Wales, Scotland and Northern Ireland set their own rates and reliefs. More in business rates for 2026/27.

The first year's tax

A company pays corporation tax on its taxable profit for each accounting period, which is usually the same 12 months as its financial year. The opening fit-out reduces that profit: the Annual Investment Allowance gives a 100% deduction on up to £1 million a year of plant and machinery, such as kitchen equipment, furniture and tills. Companies can also use full expensing on new main-rate equipment.

A company's first year of trading

• Profit before capital allowances, year to 31 March 2027£70,000
• Annual Investment Allowance on the kitchen and furniture−£40,000
• Taxable profit£30,000
• Corporation tax at the 19% small profits rate£5,700

Take a company registered at Companies House on 15 March 2026 that starts trading on 1 April 2026 and makes up its first accounts to 31 March 2027. Its first accounts are due at Companies House 21 months after registration, on 15 December 2027. Its corporation tax is due on 1 January 2028. Its Company Tax Return is due 12 months after the year end, on 31 March 2028. After the first year, accounts are due 9 months after each year end.

A sole trader tells HMRC they need to file a tax return by 5 October after the end of the tax year in which they started. The return is filed and the tax is paid by 31 January after that. From the second year, payments on account are due on 31 January and 31 July, each half of the previous year's bill, unless that bill was under £1,000.

A sole trader who opens on 1 June 2026

1. 5 April 2027The first tax year of trading ends.
2. 5 October 2027The last day to tell HMRC you need to file a tax return.
3. 31 January 2028Return filed online. The £6,000 bill for 2026/27 is paid with a first payment on account of £3,000 towards 2027/28: £9,000 in all.
4. 6 April 2028Making Tax Digital for Income Tax starts if 2026/27 trading income was over £20,000.
5. 31 July 2028The second payment on account of £3,000.

Under Making Tax Digital for Income Tax, sole traders with qualifying income over £50,000 in 2024/25 started on 6 April 2026. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028. Keep digital records from the day you open.

Records and deadlines

Tipping records are kept for three years from the date each tip was paid, and right to work copies for the length of each person's employment and two years after.

Common mistakes in the first year

• Registering the food business less than 28 days before opening.
• Missing the month the VAT threshold is passed, then owing VAT on sales from the effective date that were priced without it.
• Losing fit-out invoices, or having them made out to the owner personally, so the VAT and the capital allowances cannot be claimed by the business.
• Paying staff before registering as an employer, or running the first payroll without checking each rate against the worker's age.
• Spending the VAT and PAYE collected in the first quarter before the bills fall due.
• Leaving the eat-in and takeaway split off the till, so the first VAT return has to be rebuilt from receipts.

How we help

We set up the company or self assessment registration, the VAT and payroll from the first day, claim the VAT on the fit-out, and plan the first year's tax against your opening budget. Accounts, tax, bookkeeping and VAT returns start from £149 + VAT a month, set by your turnover. See accounts and VAT for hospitality.