The leading accountants in Leeds for restaurants, cafes, and takeaways

Running a restaurant, café or takeaway comes with enough pressure – the last thing you need is a letter from HMRC saying they’re carrying out a VAT inspection. But if that does happen, being prepared can make all the difference. In this article, we’ll explain what a VAT inspection involves, why hospitality businesses are often targeted, how long the process can take, and what practical steps you can take to avoid penalties and keep your business running smoothly. What is a VAT inspection? A VAT inspection (also called a compliance check) is when HMRC reviews your VAT returns and supporting records to check everything has been reported correctly. It might be a routine check or triggered by something unusual in your filings. For restaurant and takeaway businesses, HMRC tends to focus on areas where mistakes are common – things like cash handling, split rates for eat-in vs takeaway, and how tips and service charges are treated for VAT. Inspections may take the form of: Desk-based checks – You send over records electronically or by post. In-person visits – An HMRC officer visits your premises, sometimes unannounced. Remote reviews – Carried out over phone or video, often with digital records provided in advance. Why hospitality businesses are more likely to be inspected HMRC views the hospitality sector as high-risk, due to the mix of cash and card payments, varying VAT rates, and the fast-paced nature of the industry. You’re more likely to be selected for an inspection if: You’ve submitted late or unusual VAT returns Your sales figures fluctuate significantly between periods You regularly reclaim VAT but have relatively low reported income You haven’t registered for VAT when you should have (i.e. turnover over £90,000) You operate with a high proportion of cash sales How long does a VAT inspection take? This depends on the size and complexity of your business. A small takeaway might only take a few hours to inspect, while a busy restaurant with multiple tills, delivery services, and card readers may take longer. Some checks can be concluded in a couple of weeks, but if HMRC uncovers discrepancies or requests more records, it may take several months. What will HMRC look at? For hospitality businesses, HMRC usually focuses on: Sales records – Till receipts, EPOS reports, delivery app income (Just Eat, Uber Eats, etc.) VAT treatment of food and drink – Eat-in (standard rated) vs takeaway (zero-rated or standard depending on temperature), and alcohol sales Cash handling procedures – Including Z-read reconciliations and bank deposits Service charges and tips – Whether VAT has been applied correctly Purchase invoices – Especially on goods where VAT should not have been reclaimed (e.g. staff meals, non-business use) They may also review: VAT returns and calculations Stock records and wastage reports Supplier contracts Payroll records if tronc systems or tips are involved What happens after the inspection? There are three possible outcomes: No action – HMRC is happy with your VAT records. VAT assessment – If errors are found, HMRC will issue a bill for the underpaid VAT. Penalties and interest – If the mistake is classed as careless or deliberate, they may apply a penalty of up to 100% of the VAT due, plus interest (currently 7.75% as of July 2025). Example: A takeaway business incorrectly zero-rates all food, including hot eat-in meals. HMRC identifies £10,000 of VAT underpaid over 12 months and applies a 15% penalty (£1,500) – although this could be reduced with full cooperation. How to prepare if you’ve been contacted If HMRC contacts you about a VAT inspection, here’s what to do: Gather your records – Till reports, invoices, Z-reads, bank statements, and VAT return workings. Double-check your VAT treatment – Are you correctly charging VAT on eat-in meals, drinks, and service charges? Talk to your accountant – Contact us immediately. We’ll help you prepare for the inspection, answer HMRC’s questions, and correct any issues before they escalate. Be upfront – If there’s an error, it’s often better to disclose it voluntarily. HMRC is more lenient when businesses are proactive and cooperative. How to avoid future VAT issues To reduce the risk of future inspections: Use a reliable EPOS system and reconcile Z-reads daily Keep detailed records for eat-in, takeaway, and delivery sales Review how tips and service charges are handled for VAT and payroll Avoid reclaiming VAT on non-business purchases Book a regular VAT review with your accountant Need help? If your restaurant, café or takeaway has been contacted by HMRC – or if you just want to make sure your VAT is being handled properly – we’re here to help. We’re one of the UK’s leading accountants for hospitality businesses. We understand the common VAT pitfalls in your industry, and we know exactly what HMRC will be looking for. For help, book a call at www.msfassociates.co.uk/book-a-call or phone us on 0113 240 4100.

Every cafes or restaurant has its high points – the Saturday night rush, the Sunday brunch buzz – but what about the slow Monday mornings or rainy midweek afternoons? Those quieter spells can sneak up on you and, if you’re not prepared, they can make cash flow feel like a rollercoaster. One minute you're flying; the next, you’re wondering how to cover payroll. Having worked with restaurants and cafes for well over two decades, we've seen the tried–and–tested tactics that food businesses have used to manage their cash flow more effectively during those quieter times. 1. Understand your slow periods Start by identifying the patterns. Are Tuesday lunchtimes always quiet? Do you see a slump in January or during school holidays? Once you’ve got a clear picture of your quiet spells, you can plan around them – from staffing levels to promotions. A basic weekly sales tracker and a quick look at your POS data can go a long way here. You don’t need fancy forecasting software – just some consistency. 2. Plan your costs around your income In an ideal world, costs would only go out when money is coming in – but we all know that’s rarely the case. Still, there are a few ways to bring the two into better alignment: Speak to suppliers – Can you shift to fortnightly payments instead of weekly? Or get a bit of leeway after a particularly busy or quiet month? Avoid big purchases in low-income months – Hold off on large equipment upgrades or new menu launches until you’ve built a bit of a buffer. Use standing orders or Direct Debits for fixed costs – This helps you keep track and avoids any nasty surprises. 3. Trim the wastage – without cutting corners When cash is tight, it’s tempting to go on a cutting spree. But rather than slashing hours or skimping on ingredients (which your regulars will notice), look at where wastage creeps in: Are you over-ordering perishables? Is staff downtime being spent productively? Could portions be reviewed to avoid food being scraped into the bin? Even small tweaks can protect your margins when footfall is low. 4. Run low-cost promotions to drive footfall You don’t need to slash prices to get people through the door. Some of the best-performing offers we’ve seen include: “Bring a friend for free coffee” – works well for cafés during weekday mornings. Limited-time lunch specials – a smaller menu at a fixed price can be both cost-effective and appealing. Off-peak loyalty rewards – double stamps or exclusive treats for regulars who visit at quieter times. The key is to promote these offers smartly: social media, a simple chalkboard outside, or a note on receipts can all do the job. 5. Build a buffer during busy periods When things are booming, it’s easy to feel invincible – but don’t spend it all at once. Set aside a percentage of your peak-time profits to carry you through the leaner weeks. If your business is seasonal (think coastal cafes or Christmas-heavy venues), this becomes even more important. A separate “rainy day” pot can give you some breathing room when the tills aren’t ringing as often. 6. Keep talking to your accountant A good accountant won’t just handle the numbers – they’ll help you spot trends, flag cash flow risks early, and advise on financing if needed. We work with cafes, restaurants, and takeaways across Leeds and beyond – and we’ve seen it all, from bustling street food pop-ups to long-standing high street staples. So if you’re feeling the pressure of patchy income or you just want a second pair of eyes on your numbers, we’re here to help. Final thought Quiet spells are part and parcel of running a food business – but with planning and the right systems, they don’t have to derail your cash flow. We've seen that small adjustments, made consistently, can make all the difference between just surviving and staying comfortably ahead. If you’d like to get a better handle on your cash flow and make your quieter periods work harder for you, book a call with our team today . Restaurants, cafes, and takeaways can benefit greatly from working with a specialist accountant. If you hadn’t noticed already, we are specialist accountants in Leeds for food service businesses, so unlike most accountants, we have years of experience working with businesses just like you. If you're interested in finding out more about how we can help your restaurant become more profitable, book a call with one of our accounting experts .