How to Keep More Cash in Your Restaurant (Without Upsetting HMRC)

Let’s talk about something that quietly eats into your margins faster than a chef picking at fries on the pass… VAT. A deep dive, and 5 clear goals to increase revenue YOU keep...

A reduction in VAT for hospitality might sound like a lifeline, but the reality is far less transformative than many hope. At best, it translates into a modest saving for the customer - if my meal costs £100, a 10% reduction is hardly game-changing - and it certainly won’t fix the deeper issues that cause venues to struggle, like being quiet four days a week.

Lower tax doesn’t suddenly improve poor service, stop rushed table turnarounds, elevate average food, or ease the pressure on a panicked, overworked manager trying to hold everything together. Those are structural and operational challenges, not pricing ones. Let’s be honest: a VAT cut is a surface-level adjustment, not a cure. What the industry really needs is a clear, forward-thinking strategy - one that tackles staffing, consistency, customer experience, and evolving consumer expectations - because in an increasingly competitive and trend-driven hospitality market, survival depends on far more than shaving a few pounds off the bill.

If you’re in hospitality in the UK, you’re currently dealing with 20% VAT on most food and drink sold for consumption on-site. That’s not just a slice of your revenue—that’s a full-on chunk. Especially when you compare it to parts of Europe where hospitality VAT can sit as low as 7% in Germany, 10% in France, or even lower in some cases during support periods.

So..., if your main course is £25 including the current UK VAT rate of 20%, here’s how it would change if VAT dropped to 10%:

• First, remove the 20% VAT to find the base price:

  
  

  £25 ÷ 1.20 = £20.83 (net price)

• Then apply 10% VAT:

  
  

  £20.83 × 1.10 = £22.92

So the new menu price would be ~£22.92

That’s a saving of about £2.08, or roughly 8.3% off the original price.

Translation?

UK operators are playing the same game… but with a heavier backpack.

But is that enough of a saving, to drive sales an additional 8 services per week? 25 covers per service? Well; Lets park THAT right now for another time...

So instead of waiting for policy changes (don’t hold your breath), the smart move is this:

structure your offer to legally keep more of your money.

Here’s how to do exactly that - without dodgy tactics, grey areas, or a call from HMRC that ruins your week.

1. Cold Food = Quietly Powerful

Cold takeaway food is one of the simplest ways to improve margins.

We’re talking:

• Premium sandwiches

• Deli salads

• Grab-and-go lunch pots

As long as it’s not sold as hot food, it’s typically zero-rated for VAT.

Reality - a micro deli could be on the cards here, consider some alternatives, pizzette, arancini, focaccia sandwiches, flatbreads all to look at.

The play: Build a fridge offering that actually looks desirable - not sad. Think “artisan lunch”, not “petrol station regret”.

2. “Heat at Home” = Big Brain Move

This is where things get interesting.

Meal kits, finish-at-home dishes, prep boxes - these exploded during lockdown for a reason:

• Lower labour pressure on service

• Scalable

• And crucially… often zero-rated

Examples:

• Braised beef ready to reheat

• Par-cooked lasagne

• Sunday roast kits

The play: You’re not just selling food - you’re selling convenience with theatre at home, and lets be honest, Gousto/Hello Fresh - Meal box delivery services exist - so can you keep loyalty, and as a guest gain trust in a product and eat your fave brand - win win, its not just a lockdown fad, keep your customers from eating anywhere else!

3. Cold Drinks = Margin Gold

Iced lattes, smoothies, cold brew…

They:

• Look premium

• Cost relatively little

• And often fall outside standard VAT rules

The play: Turn your takeaway drinks into a brand moment - not an afterthought. (Bonus points for a strong cup design people carry around like a badge of honour.)

Not just for summer - look at other vendors, iced everything is in store, and for a very good reason, so if they arent part of your formula right now - get them on!

4. The Bakery “It’s Just Cooled Down” Trick

Yes… the famous one.

If bakery items are:

• Not kept hot

• Simply cooling naturally after baking

They can be sold without VAT applying.

That’s why that famous high street bakery gets away with it…

The play:

No heated displays. No “served hot” messaging. Just great product doing its thing.

... AND, who doesn't love a brownie or muffin, slightly warm to walk back home of the office with, right?

5. Retail Products = The Sleeper Hit

This is the one most restaurants massively underuse.

Think:

• House sauces

• Spice blends

• Brownies, cakes, take-home treats

Sold as retail? Typically zero-rated. So when you leave your local venue, and notice a branded sauce, or logo'd product, its for a very good reason...

The play: This isn’t just VAT efficiency - it’s brand extension. Your restaurant leaves with the customer.

Reality Check (Before You Get Too Excited)

A few hard rules:

• Eat-in? VAT applies. Every time.

• “Hot food”? VAT applies.

• Heat lamps and “served hot” language? HMRC says hello.

This isn’t about bending rules - it’s about understanding them better than your competitors.

The Bigger Picture: This Is About Survival (and Growth)

Margins in hospitality are tighter than ever:

• Rising wages - I mean add an apprentice to the team and they are NIC exempt too!

• Energy costs

• Supplier increases

So saving even 5–10% across parts of your offer isn’t small—it’s the difference between:

• Profit and break-even

• Growth and stagnation

• Breathing room and burnout

The Smart Operator’s Approach

The best operators aren’t choosing between dine-in or takeaway…

They’re building two businesses under one roof:

1. A premium dine-in experience (full VAT, full theatre)

2. A clever takeaway/retail arm (VAT - efficient, scalable, brand-building)

That’s how you:

• Protect margins

• Increase spend per customer

• Future-proof your business

Final Thought

You don’t need to cut quality.

You don’t need to slash prices.

OR worse - just launch pricing through the roof 🌪️

You just need to play the game smarter.

Because in hospitality right now…

keeping more of what you earn is just as important as earning it in the first place.

Just imagine if you made conversation with guests through dining in experiences and you suggested you had all these ways to dine with you and not ALL directly in store, or dont even have to leave home for?

For any other growth and saving opportunities, ive put them all in one easy to download FREE 14 page pullout ready to action, and save your venue, because lets be honest, no one is coming to save your business - you grab it here.

If you’re building something and want a fresh set of eyes on how to structure your offer smarter - The Chef Hub is always here for a chat. No jargon, no nonsense… just better ways to make hospitality work.