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Hotel for sale in the UK: what a small buyer needs from the accounts to see real profit

By Provenance Diligence team · .

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Contents

  1. What real profit means for a small hotel buyer
  2. Replacing the owner's work: wages, National Insurance and pension
  3. Business rates are a formula, not a fixed bill
  4. Costs of buying: stamp duty and equipment
  5. One hotel, five versions of its profit

1. What real profit means for a small hotel buyer

Short answer: Real profit is the money the hotel earns after someone is paid to do the owner's job and after the costs that belong to the next owner. The filed profit figure shows neither.

A small hotel is often run by the people who own it. They answer the phone at night, cook breakfast, clean rooms in a busy week and do the books. None of that appears as a cost if they take their reward as profit rather than as wages.

You will not do that work for free. Either you do it yourself, and your time has a price, or you hire someone, and the hotel pays them. In both cases the profit you inherit is lower than the profit in the seller's accounts.

This post works in three layers. The first layer is the profit the seller reports. The second layer deducts the cost of the owner's work (section 2). The third layer deducts the costs that change when the owner changes: business rates (section 3) and the next April wage rise (section 2).

Stamp duty and the equipment you buy are different. They are not yearly costs, so they belong in the price you pay, not in the yearly profit (section 4).

All sums in this post use one imaginary hotel, so the numbers can be followed from one section to the next.

Illustrative figures. A 12-bedroom hotel owned by a limited company. Turnover for the last full year is £620,000. Profit before tax is £95,000. The payroll has three part-time housekeepers, each working 25 hours a week for 52 weeks. It has no manager, because the owners run the hotel themselves. The rateable value is £40,000. The building is freehold and the sale price is £850,000.

Every later sum in this post starts from those figures. If the seller's real figures differ, the method stays the same and the sums change.

2. Replacing the owner's work: wages, National Insurance and pension

Short answer: Price the owner's job at the legal wage floor, then add employer National Insurance and pension. At 45 hours a week for 52 weeks the floor cost is £34,157.65 before any National Insurance relief.

The wage floor

From April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour. The rate for ages 18 to 20 is £10.85. The rate for under-18s and apprentices is £8 [GOV.UK, National Minimum Wage and National Living Wage rates].

From April 2027 these become £13.21, £11.27 and £8.31 [GOV.UK, National Minimum Wage and National Living Wage rates]. In the year to March 2026 they were £12.21, £10 and £7.55.

The rise between the two latest April dates is £0.50 an hour for workers aged 21 and over. That is 12.71 minus 12.21, and 13.21 minus 12.71.

The legal floor is the least that can be paid. A hotel manager may be paid more, and the market rate for the role is something you must establish for yourself. The floor gives the lowest honest figure. If it already cuts the profit, a higher wage cuts it more.

Employer National Insurance

Employers pay Class 1 National Insurance of 15% on earnings above the secondary threshold. For 2026 to 2027 the threshold is £96 a week, £417 a month or £5,000 a year [GOV.UK, Rates and thresholds for employers 2026 to 2027].

Employees under 21 are different. For them the employer rate is 0% up to £50,270 a year, and 15% above it. The same applies to apprentices under 25 [GOV.UK, Rates and thresholds for employers 2026 to 2027].

The Employment Allowance

The Employment Allowance is £10,500 for 2026 to 2027. It lets eligible employers reduce their annual National Insurance bill. Who is eligible is set out on a separate GOV.UK page [GOV.UK, Rates and thresholds for employers 2026 to 2027].

For a small hotel the allowance can change the result completely. If the whole employer National Insurance bill is under £10,500 and the employer is eligible, the bill is nil. Whether you are eligible depends on facts about the employer that you must check, so the sums below show both cases.

Workplace pension

Automatic enrolment contributions are based on total earnings between £6,240 and £50,270 a year. The minimum employer share is 3% and the minimum total is 8%, of which the employee pays 5% [GOV.UK, Workplace pensions: what you, your employer and the government pay].

The owner's job, priced

Illustrative figures. A manager works 45 hours a week for 52 weeks, at £12.71 an hour. That is 45 × 52 = 2,340 hours.

  • Wages: 2,340 × £12.71 = £29,741.40.
  • Employer National Insurance: 15% × (£29,741.40 − £5,000) = 15% × £24,741.40 = £3,711.21.
  • Employer pension: 3% × (£29,741.40 − £6,240) = 3% × £23,501.40 = £705.04.
  • Total: £29,741.40 + £3,711.21 + £705.04 = £34,157.65.

Check: £29,741.40 + £3,711.21 = £33,452.61, and £33,452.61 + £705.04 = £34,157.65.

If the Employment Allowance applies, the National Insurance line is nil in this case and the total is £29,741.40 + £705.04 = £30,446.44.

The hotel's reported profit of £95,000 then becomes £95,000 − £34,157.65 = £60,842.35.

The staff already on the payroll

The accounts also show the staff the seller already pays. Two details change what they will cost you.

Rises of £0.50 an hour. Illustrative figures. Three housekeepers working 25 hours a week for 52 weeks work 3 × 25 × 52 = 3,900 hours. A £0.50 rise costs 3,900 × £0.50 = £1,950 in gross wages. The same rise comes again in April 2027, so the second year costs a further £1,950. Both amounts are before National Insurance and pension.

Age bands. A worker aged 18 to 20 earns less and costs no employer National Insurance up to £50,270. One worker doing 25 hours a week for 52 weeks works 1,300 hours. At £10.85 the wage is £14,105. At £12.71 it is £16,523.

Illustrative figures. When that worker turns 21, the extra pay is 1,300 × (£12.71 − £10.85) = 1,300 × £1.86 = £2,418. Employer National Insurance starts: 15% × (£16,523 − £5,000) = 15% × £11,523 = £1,728.45. Extra cost before pension: £2,418 + £1,728.45 = £4,146.45.

Check: 1,300 × £10.85 = £14,105 and 1,300 × £12.71 = £16,523, a difference of £2,418.

A hotel whose payroll leans on staff under 21 will look cheaper than it will stay.

Illustrative figures. For the whole imaginary payroll with the manager, employer National Insurance without the allowance is £3,711.21 for the manager and 3 × £1,728.45 = £5,185.35 for the three housekeepers. Total £8,896.56. This is below £10,500, so an eligible employer would pay nothing, and £1,603.44 of the allowance would stay unused.

Check: £3,711.21 + £5,185.35 = £8,896.56; £10,500 − £8,896.56 = £1,603.44.

For this part of the price, ask a payroll adviser one question: is the company that will employ the staff eligible for the Employment Allowance for the tax year of the purchase?

3. Business rates are a formula, not a fixed bill

Short answer: Business rates are the rateable value multiplied by a rate in the pound, with reliefs taken off afterwards. A relief the seller received may not pass to you, so work out the bill both ways.

The formula

In England, business rates are the rateable value multiplied by a multiplier. Reliefs are deducted afterwards [GOV.UK, Calculate your business rates].

For 2026 to 2027 the multipliers are 48p for rateable values from £51,000 to £499,999, 43.2p for values below £51,000 and 50.8p at £500,000 or more. Eligible retail, hospitality and leisure properties pay 43p and 38.2p on the first two bands [GOV.UK, Calculate your business rates].

GOV.UK lists a hotel among its examples of retail, hospitality and leisure businesses. The council decides whether a property qualifies. A business that received retail, hospitality and leisure relief in 2025 to 2026 will usually be eligible [GOV.UK, Calculate your business rates].

Sums for two sizes of hotel

Illustrative figures. The imaginary hotel has a rateable value of £40,000, which is below £51,000.

  • Standard multiplier: £40,000 × 0.432 = £17,280.
  • Retail, hospitality and leisure multiplier: £40,000 × 0.382 = £15,280.
  • Difference: £17,280 − £15,280 = £2,000 a year.

Illustrative figures. A larger hotel with a rateable value of £60,000 falls in the 48p band.

  • Standard: £60,000 × 0.48 = £28,800.
  • Retail, hospitality and leisure: £60,000 × 0.43 = £25,800.
  • Difference: £28,800 − £25,800 = £3,000 a year.

Check: £40,000 × 0.432 = £17,280 and £40,000 × 0.382 = £15,280; £60,000 × 0.48 = £28,800 and £60,000 × 0.43 = £25,800.

If the seller's accounts show the lower figure and the council does not treat the property as qualifying under your ownership, the £2,000 or £3,000 is a cost you inherit.

Where the bill comes from

Local councils send business rates bills in February or March for the following tax year. Some relief is applied automatically and some must be applied for. A ratepayer who thinks the rateable value is wrong contacts the Valuation Office [GOV.UK, Introduction to business rates].

Ask for the bills and any relief notices for the last two years. They show the rateable value, the multiplier used and each relief taken.

4. Costs of buying: stamp duty and equipment

Short answer: Stamp duty land tax on a hotel bought freehold follows the non-residential table. On an £850,000 price it is £32,000. Equipment you buy may qualify for the Annual Investment Allowance, which reduces tax, not the price.

Stamp duty land tax on a freehold

Non-residential Stamp Duty Land Tax on a freehold purchase is 0% up to £150,000, 2% on the portion from £150,001 to £250,000, and 5% above £250,000 [GOV.UK, Stamp Duty Land Tax: non-residential and mixed rates].

Non-residential property includes commercial property such as shops or offices, and any other property that is not part of a dwelling's garden or grounds. A mixed-use property has both residential and non-residential parts, such as a flat above a shop [GOV.UK, Stamp Duty Land Tax: non-residential and mixed rates].

A hotel with an owner's flat in the building is a candidate for the mixed-use description.

Illustrative figures. The imaginary hotel is sold freehold for £850,000.

  • First £150,000 at 0%: £0.
  • £150,001 to £250,000, which is £100,000, at 2%: £2,000.
  • Above £250,000, which is £850,000 − £250,000 = £600,000, at 5%: £30,000.
  • Total: £0 + £2,000 + £30,000 = £32,000.

Check: £150,000 + £100,000 + £600,000 = £850,000, so every pound of the price is taxed once.

Stamp duty land tax on a lease

On a new lease, the tax is charged at 0% on the first £150,000 of the net present value of the rent, 1% from £150,001 to £5,000,000 and 2% above. The premium and the rent value are calculated separately and added together [GOV.UK, Stamp Duty Land Tax: non-residential and mixed rates].

Illustrative figures. A hotel is let on a new lease with no premium and a rent value of £400,000.

  • First £150,000 at 0%: £0.
  • £150,001 to £400,000, which is £250,000, at 1%: £2,500.
  • Total: £2,500.

Check: £150,000 + £250,000 = £400,000.

The comparison matters when a hotel is offered either as a freehold sale or as a lease. The tax is one of the costs that separate the two offers, along with the rent itself.

For this part of the price, ask a tax adviser one question: which of the tables applies to a hotel that includes the owner's accommodation, and how is the price split between land, building and contents?

Equipment and the Annual Investment Allowance

The Annual Investment Allowance is £1 million, with a new allowance for each accounting period. It applies to most plant and machinery but not to business cars, items owned before business use, or gifted items. Amounts above the limit get writing down or first-year allowances [GOV.UK, Annual Investment Allowance].

No allowance can be claimed on items bought in the final accounting period of a business that closes. A balancing charge or allowance is entered on the return for the year of closure [GOV.UK, Annual Investment Allowance].

Two points follow for a hotel buyer.

The allowance is a tax allowance on spending. It does not change the price of the hotel or what the equipment costs. A buyer who plans to refit bedrooms or a kitchen can plan the spend inside a single accounting period.

If the sale contract puts a figure on the contents, the amount allocated to equipment matters, because the allowance covers plant and machinery.

5. One hotel, five versions of its profit

Short answer: The same hotel can show £95,000 in the listing and about £53,772 once the owner's work, the rates relief and two wage rises are counted. At a multiple of four, that gap is worth £164,910.60 in price.

Illustrative figures. The imaginary hotel from section 1, taken one step at a time. Each step uses a sum from an earlier section.

StepWhat changesProfit after the step
1Profit before tax in the seller's accounts£95,000.00
2A manager at £12.71 an hour, with National Insurance and pension (section 2, no allowance)£60,842.35
3Business rates at the standard multiplier because the relief does not pass (section 3): minus £2,000£58,842.35
4The three housekeepers move from £12.21 to £12.71 an hour (section 2): minus £1,950£56,892.35
5April 2027 rise to £13.21 for the manager and the housekeepers: 6,240 hours × £0.50 = minus £3,120£53,772.35

Check: £95,000 − £34,157.65 = £60,842.35. £60,842.35 − £2,000 = £58,842.35. £58,842.35 − £1,950 = £56,892.35. £56,892.35 − £3,120 = £53,772.35. The hours in step 5 are the manager's 2,340 plus the housekeepers' 3,900, which make 6,240.

Steps 4 and 5 are before the extra employer National Insurance and pension on those rises. They also assume the housekeepers' pay in the accounts reflects the rates for the year to March 2026.

The gap between the listing and step 5 is £95,000 − £53,772.35 = £41,227.65, which is about 43% of the listed profit.

For illustration only, apply a multiple of four to the profit. The multiple is a round number chosen for the example and is not a market figure. A price set at four times the listed profit is £380,000. At four times step 5 it is £215,089.40. The gap is £164,910.60.

Check: 4 × £95,000 = £380,000; 4 × £53,772.35 = £215,089.40; £380,000 − £215,089.40 = £164,910.60.

Not every step applies to every hotel. Step 3 applies only if the seller's relief does not pass to you. Step 2 does not apply if you run the hotel yourself, but your own time then has a cost of the same size.

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