Every pint you sell at £5.34 has 89p of VAT inside it. That was never your money. Add the 50p or so of alcohol duty sitting in the cost side and a pub collects more tax per pint than it keeps in profit. This is how pub VAT actually works in 2026: what you charge, what you claim back, the food rules that catch people out, and why the flat rate scheme is nearly always the wrong answer for a pub.

Usual health warning first. I am a licensee, not an accountant, and this is plumbing, not tax advice. Your accountant files the return. But if you do not understand what the return is doing, you price wrong, you read your GP report wrong, and you meet a VAT-quarter bill with money you already spent.

The basics: 20% on nearly everything a pub sells

Every drink that crosses your bar is standard rated. Beer, cider, wine, spirits, the post-mix, the coffee, the alcohol-free lager, all of it carries 20% VAT. There is no reduced rate hiding anywhere on the wet side.

People still half-remember the pandemic VAT cut and ask about it. That 5% rate, then 12.5%, only ever applied to food, accommodation and soft drinks sold as part of catering. It never touched alcohol, and it ended in April 2022. It is gone.

To find the VAT inside a price you charge, divide by six. A £5.34 pint is 89p of VAT and £4.45 of yours. A £9 fish and chips is £1.50 of VAT and £7.50 of yours. Which is why every serious margin number in this trade is worked ex VAT, and if that sentence annoys you, read ex VAT versus inc VAT before your next stocktake.

Food is where the rules get silly

Drinks are simple. Food has a rulebook, and the rulebook is VAT Notice 709/1.

Anything eaten on the premises is 20%, hot or cold. A cold sandwich at a table is standard rated. Hot takeaway food is also 20%: if it is served hot so it can be eaten hot, it carries VAT out the door.

Cold takeaway food is the odd one out. It is zero rated. The same sandwich that carries £1 of VAT at the corner table carries none if a walker takes it away in a bag. If you do any real takeaway trade, your till needs separate buttons for eat-in and takeaway, or you will hand HMRC VAT you never owed and no one will ever tell you. Wrong till buttons quietly wreck more than your variance report, and I have written about what they do to your stocktake already.

VAT on duty: yes, that is a tax on a tax

Alcohol duty gets paid by the brewer and lands in your cost price. A 4.5% draught pint is carrying about 50p of duty before it reaches your cellar, and the full workings are in my duty guide.

Here is the bit that winds me up. VAT is charged on your full selling price, and your selling price includes that duty. So of the 89p of VAT in a £5.34 pint, roughly 10p is VAT charged on duty. The Treasury taxes its own tax and the pub does the collecting. Nobody in the supply chain even pretends this is sensible, but it is the law, so price with it in mind.

The threshold conversation, settled with one sum

You must register for VAT once taxable turnover passes £90,000 in any rolling 12 months. Deregistration is £88,000. Every few weeks someone in a licensee group asks about staying under it, and the thread runs to dozens of comments.

So do the sum. £90,000 a year is £1,731 a week through the till. A wet-led pub taking £1,731 a week is not deciding whether to register for VAT, it is deciding whether to stay open. The threshold question is real for a village club bar open three evenings, or a tiny micropub in its first year. For a trading pub it is settled before it is asked: you are in, register on time, because HMRC will assess you anyway and add penalties if you are late.

What you claim back, and what you cannot

Being registered cuts both ways, and the reclaim side is the bit people under-work. VAT you are charged on business purchases comes back off your bill. Stock is the big one: a £160 keg is £192 on the invoice, and that £32 is yours to reclaim. Same for glassware, cleaning chemicals, repairs, the accountant, gas and electric.

Some costs carry no VAT at all, so there is nothing to claim: business rates, insurance (that is insurance premium tax instead), wages, and most card processing charges, which are exempt financial services. If card fees are on your mind for other reasons, that guide is here.

The rule that matters: no invoice, no claim. Every delivery note that goes missing behind the cellar door is VAT you paid and never got back. This is one of the reasons I built invoice scanning into StockTap: scan the delivery note, it logs the net and the VAT separately, and the Finances tab keeps a running VAT-to-reclaim figure on purchases. At quarter end that number is exactly what your accountant asks for.

The flat rate scheme: know why you are saying no

The flat rate scheme lets a small business skip the input-VAT bookkeeping and just pay HMRC a fixed percentage of gross turnover. The rate for pubs is 6.5%, with 1% off in your first registered year. You can join if you expect VATable turnover under £150,000 and you are thrown out past £230,000.

Two structural problems for a pub. First, the £150,000 door: most trading pubs are already past it, see the threshold sum above. Second, and worse, flat rate means no reclaim on purchases, and a pub's whole cost base is VATable stock. The scheme was designed for consultants with a laptop and no stock, which is also why the 16.5% limited cost business rate exists to catch exactly them. A wet-led pub giving up £30 of reclaim on every keg to save some bookkeeping is not simplifying, it is donating. If your accountant thinks your particular shape of business is the rare exception, have them run both sums on paper. Do not take a scheme because it sounds simpler.

Cash accounting: built for invoicing businesses, not pubs

Cash accounting, available under £1.35m turnover, lets you pay output VAT when your customer pays you rather than when you invoice. Sounds friendly. Now remember how a pub gets paid: in seconds, at the bar. There is nothing to defer. Meanwhile your input reclaim waits until you have actually paid the supplier, so if the brewery gives you credit terms, cash accounting can push your reclaim back a quarter. For most pubs it makes the return worse, not better. It exists for businesses that wait 60 days to get paid, which is the opposite of us.

The quarterly rhythm, and the weekly habit that saves you

VAT returns are quarterly and digital. Making Tax Digital applies to every VAT-registered business, so the records live in software and the return goes in through it. Payment is due one month and seven days after the quarter ends.

The trap is not the paperwork, it is the cash. In a normal 800-pint week you collect around £712 of output VAT on draught alone, my arithmetic at the average pint price. Some of that comes back as input VAT off your stock and bills, but the balance belongs to HMRC from the moment it hits the till, and the bill lands thirteen weeks later. The oldest failure in this trade is trading for a quarter on HMRC's money and meeting the return with the brewery's. Move the VAT share into a separate account weekly and the quarter-end bill becomes boring, which is what a tax bill should be.

Ex VAT or inc VAT: pick a lane

Your till reads inc VAT. Your GP%, your stock valuation and every number your stocktaker gives you should be ex VAT. Mixing the two is the single most common reason two GP calculators disagree about the same pint, and I wrote up why the same pint can read 64.9% or 70.8% depending on who is holding the calculator. If your GP suddenly looks brilliant, check the VAT basis before you celebrate.

Will VAT come down? Campaign yes, budget no

The trade is pushing hard on this. In September an open letter backed by more than 800 hospitality businesses went to the Chancellor arguing VAT is the problem, and the trade bodies have argued for a lower hospitality rate for years. The Budget is 28 October. I hope they win. But hope is not a pricing strategy: build your margins on 20%, and if a cut ever comes, enjoy the upgrade. Pricing on a rumour is how you end up needing my guide on clawing GP back in 30 days.

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