The most common error is to compare a VAT-inclusive till price with an ex-VAT supplier cost. That makes the margin look stronger before the first pint is poured.
A £6.30 till price is only £5.25 of net drink sales
Alcoholic drinks are standard-rated. The standard VAT rate is 20% as at August 2026. HMRC says a VAT-inclusive standard-rate price is converted to its net value by dividing by 1.2. Sources: https://www.gov.uk/vat-rates and https://www.gov.uk/charge-reclaim-record-vat/charging-vat
A pint sold for £6.30 has a net selling value of £5.25: £6.30 ÷ 1.2 = £5.25. The £1.05 difference is output VAT, not drink revenue. HMRC expresses the same calculation as a one-sixth VAT fraction for a tax-inclusive price at 20%.
Use the net supplier cost only when purchase VAT is recoverable. GOV.UK says registered businesses can reclaim VAT on qualifying business purchases with the required evidence. Partial exemption, blocked input tax or a special scheme can change the treatment. Source: https://www.gov.uk/charge-reclaim-record-vat/reclaim-vat-business-expenses
Draught GP must use sellable pints, not theoretical pints
A 50-litre keg contains 50,000ml. UK specified-quantity rules cover how draught beer and cider are sold. For a 568ml pint, the theoretical yield is 50,000ml ÷ 568ml = 88.03 pints. Source: https://www.gov.uk/weights-measures-and-packaging-the-law/specified-quantities
Theoretical yield is not the same as sellable yield. Line cleaning, fobbing, samples, overpour and recorded waste reduce the number served. Measure the gap from each site's stock and till records. Do not copy a general percentage.
If the measured allowance is 4.0%, the illustrative sellable yield is 88.03 × 96.0% = 84.51 pints.
The correct worked answer is 66.2% GP, not 71.8%
The following Red Lion example is illustrative. Its standard lager has these inputs:
- VAT-inclusive till price: £6.30 per pint.
- Net supplier cost: £150.00 per 50-litre keg.
- Measured draught wastage allowance: 4.0%.
- Sellable yield: 84.51 pints.
Gross profit per pint is £5.25 net selling price − £1.77 cost = £3.48. The percentage is £3.48 ÷ £5.25 × 100 = 66.2% GP.
Using the £6.30 till price with the same £1.77 cost gives 71.8%. That VAT mistake overstates the result by 5.6 percentage points. Ignoring wastage as well raises the false result to about 73.0%.
At 1,000 pints, each percentage point equals £52.50 of net sales. A 5.6-point error therefore misstates the apparent gross profit by about £294 before any other operating cost is considered.
Bottles need the same VAT basis but no draught-yield estimate
For a sealed bottle or can, use the number of saleable units in the case. Suppose an off-licence buys a bottle for £7.20 ex VAT and sells it for £14.40 including VAT.
Record damaged bottles, staff drinks, promotions and unrecorded write-offs separately so they do not disappear inside an assumed unit yield.
The invoice pack and the till unit must match before GP is trusted
A supplier invoice may show a 50-litre keg, a 24 × 330ml case or a 6 × 75cl case. The till sells a pint, bottle, glass or measure. Convert both records to the same sale unit before calculating GP.
Involiqo item analytics can place recurring supplier invoice lines beside the current item cost. It can expose a changed pack, unit price or duplicate item description. The operator still has to supply the recipe, serving size and actual yield. Invoice data cannot prove how much draught product reached the glass.
This is the drinks counterpart to calculating food cost from stock: https://involiqo.com/blog/food-cost-percentage-formula-uk. To judge whether the number supports the wider business, use the menu-weighted target guide: https://involiqo.com/blog/good-food-cost-percentage-uk
Gross profit does not include the costs of running the bar
Drink GP is selling value less the drink's direct product cost. It does not deduct bar wages, rent, rates, card fees, utilities, glassware, line-cleaning labour or finance costs. It is a product-margin measure, not net profit or cash available.
Do not force a venue-wide drinks percentage onto every category. Draught beer, spirits, wine by the glass and packaged retail lines have different yields and contribution pounds. Review item GP, category mix and total overhead together.
Frequently asked questions
Do I subtract 20% from the till price?
No. For a standard-rated VAT-inclusive price, divide by 1.2 or subtract the one-sixth VAT fraction. Taking 20% off £6.30 gives £5.04, which is wrong. Dividing by 1.2 gives the correct £5.25 net value under HMRC's current method.
Should wastage be deducted from sales or added to cost?
Use one consistent method. Spreading the keg's net cost across actual sellable pints makes the cost per serve clear. Record waste units and reasons separately. Do not also deduct the same wastage from sales, or you will count the loss twice.
What if the business is not VAT registered?
Do not remove output VAT from a price when the business is not charging it. Use the actual selling price and the supplier cost the business cannot reclaim. Registration status and special VAT arrangements can change the basis, so confirm the treatment with an accountant.
Key takeaways
- Divide a standard-rate VAT-inclusive till price by 1.2.
- Compare net sales with net recoverable product cost.
- Cost draught drinks across measured sellable serves.
- Convert invoice packs and till units to one measure.
- Keep GP separate from overhead, net profit and cash.
Sources
- GOV.UK — VAT rates: https://www.gov.uk/vat-rates
- GOV.UK — Calculate prices with and without VAT: https://www.gov.uk/charge-reclaim-record-vat/charging-vat
- HMRC — VAT guide, including VAT fractions: https://www.gov.uk/guidance/vat-guide-notice-700
- GOV.UK — VAT rates on different goods and services: https://www.gov.uk/guidance/vat-rates-on-different-goods-and-services
- GOV.UK — Reclaim VAT on business expenses: https://www.gov.uk/charge-reclaim-record-vat/reclaim-vat-business-expenses
- GOV.UK — Specified quantities for alcoholic drinks: https://www.gov.uk/weights-measures-and-packaging-the-law/specified-quantities
Recalculate the five biggest drink lines this Monday
Take the till price, current supplier invoice cost and measured yield for five high-volume drinks. Put every figure on the same VAT basis, then investigate the largest percentage-point difference.
See how Involiqo connects supplier invoice lines with item-level cost evidence: https://involiqo.com/#bento-overview
See it in practice
See your operational data more clearly.
Explore how Involiqo brings invoices, cash flow and supplier cost information into one practical view.