The 2025-2026 hospitality landscape
UK hospitality enters 2026 in a difficult position. Sector insolvencies in 2025 totalled 3,353 — a 3.2% decrease on 2024's 3,465 but still elevated by historic standards and a far worse position than pre-pandemic. The Buchler Phillips Hospitality Index (which tracks monthly insolvencies against a January 2014 base of 100) stood at 187.3 in December 2025 — nearly double its baseline level.
The cost pressure stack is the principal driver. Employer NIC threshold changes from April 2025 brought more than 750,000 hospitality employees into employer NIC for the first time. National minimum wage and national living wage increases compounded the wage cost shock. Business rates relief was cut from 75% to 40% (capped at £110,000) for 2025/26 — a 140% increase in average pub business rates. Cumulatively, the sector faces £3-4 billion in additional annual costs from October 2024 Budget changes alone.
Q4 2025 high-profile sector failures included Bistro Live (pre-pack sale), Leon Restaurants (administration with closures), The Coconut Tree, and DC London — the Pizza Hut UK franchisee that entered administration in October 2025 (Yum! Brands subsequently bought 64 sites in pre-pack, saving 1,276 jobs). BrewDog closed 10 venues during 2025; Oakman Inns entered administration. The pattern is consistent: even substantial branded operators with scale and brand strength are entering procedure.
The April 2026 business rates revaluation — based on 2024 property values — will reset the rates position for many hospitality properties. The November 2025 Budget announced planned multiplier reductions for retail, hospitality, and leisure properties for 2026/27, expected to be worth approximately £900 million annually across more than 750,000 properties. Whether the revaluation and multiplier changes materially help individual operators depends on property-specific factors.
Why hospitality businesses fail
Hospitality failures cluster around predictable patterns. The IQ Insolvency engagements in this sector typically show a combination of:
Lease cost rigidity. Hospitality lease costs are typically substantial and indexed — reduced trading does not produce reduced rent. Where revenue declines, lease becomes a fixed burden that quickly consumes margin.
Wage cost shock. The October 2024 Budget changes added meaningful wage cost across all hospitality businesses. For sub-100-employee operators, the cumulative effect is often £50,000-£500,000 of additional annual cost.
Supplier credit erosion. Hospitality suppliers (food, drinks, brewery tie partners) typically extend short credit terms. Where payment slips, supply often stops or reverts to pro-forma — producing operational disruption that compounds the underlying cash issue.
Business rates. Even after the 40% rates relief, hospitality business rates are substantial and not directly correlated with trading performance. Rates due quarterly typically arrive at the worst possible cash flow point.
Brewery tie and pubco arrangements. Tied pub operators face unique constraints — tied product purchasing, fixed rent obligations, limited operational flexibility. Where the underlying business model is failing, the tie arrangement often makes restructuring harder.
Energy costs. Although energy markets stabilised somewhat in 2025, hospitality remains energy-intensive (kitchens, refrigeration, heating). Energy cost spikes hit hospitality margins disproportionately.
Consumer spending compression. Real wage growth remains weak; consumers have become more price-sensitive on discretionary hospitality spend. Volume declines combine with cost increases to compress margin from both sides.
Where multiple of these factors are present concurrently — which is most distressed hospitality scenarios — the position is structural rather than cyclical. Time to Pay arrangements and other liquidity-bridging measures cannot resolve a structural margin compression. Procedural choice must address the underlying viability question.
Sector-specific HMRC patterns
Hospitality HMRC arrears typically follow predictable patterns:
VAT under-payment. Hospitality businesses operate on weekly takings cycles; VAT is quarterly. The temptation to use VAT receipts as working capital is strong. By the time VAT falls due, the cash has typically been used elsewhere — producing growing arrears across multiple quarters. Detailed coverage in the can't pay VAT spoke.
PAYE arrears. Where wage costs increase faster than revenue, the PAYE/NIC due on the wages becomes harder to remit. Hospitality PAYE arrears typically build over 3-6 months before HMRC engagement crystallises. Detailed coverage in the can't pay PAYE spoke.
Supplier preference. Operators in distress typically prioritise key suppliers (food, drinks, brewery tie) over HMRC. This is rational short-term commercial behaviour but accelerates HMRC's view that the business is in structural distress and triggers HMRC enforcement.
HMRC's engagement with hospitality has hardened post-pandemic. The HMRC Field Force has been notably more active in hospitality enforcement than in many other sectors — partly reflecting visible-trading characteristics that make hospitality good targets for enforcement visits. Where HMRC arrears reach the level of HMRC Field Force visit or HMRC distraint action, the realistic available time for structured response is short.
Crown preference (in force since 1 December 2020) materially affects hospitality recovery economics. Most hospitality businesses have substantial VAT and PAYE arrears at the point of insolvency — all of which now ranks ahead of floating charge holders. The position substantially reduces lender recoveries in liquidation and tightens lender appetite for hospitality refinancing. Detailed coverage in the HMRC Crown preference spoke.
The principal procedural routes
When formal procedure is not yet right
Where the underlying business is fundamentally viable but illiquid — a temporary cash flow gap caused by a specific event (seasonal trough, one-off cost, deferred revenue) and a realistic recovery path — the answer is typically informal: Time to Pay arrangements with HMRC, supported by a realistic TTP cash flow forecast, can bridge VAT and PAYE arrears over 6-12 months; trade creditor compromise (informal payment plans with key suppliers) can preserve supply continuity; and refinancing or capital injection may work where the underlying P&L supports it.
The realistic test is whether forward trading, after the bridge measures, produces sufficient margin to service the cumulative obligation. Where this test cannot be met, informal measures are typically deferring rather than solving. Continued trading without a realistic recovery path engages wrongful trading exposure under section 214 IA 1986.
When CVA can preserve the business
Company Voluntary Arrangements are the principal restructuring procedure for hospitality operators with viable underlying businesses but unsustainable lease and creditor cost stacks. CVA can compromise unsecured creditors (trade suppliers, residual HMRC unsecured debt for corporation tax/employer NICs, landlord arrears) to a percentage payment over 3-5 years; restructure lease obligations through landlord-specific arrangements (often the principal commercial value of a hospitality CVA); preserve the trading entity, brand, customer relationships, and workforce; and run alongside continued trading, generating the contributions that fund the CVA payments.
Hospitality CVAs have variable success rates. Successful CVAs require a fundamentally viable underlying business; landlord engagement on lease modifications; HMRC support given the Crown preference comparator (HMRC must see the CVA as producing better outcome than liquidation); and disciplined post-CVA execution. Failed CVAs typically convert into administration or CVL within 12-18 months.
When administration is the answer
Administration is appropriate for multi-site hospitality operators where business rescue or value-preserving sale is feasible. The administrator's objective hierarchy under Schedule B1 IA 1986 is: rescue the company as a going concern; achieve a better result for creditors than liquidation; or realise property to make a distribution to secured/preferential creditors.
Hospitality administrations frequently produce pre-pack administration outcomes — immediate sale of the trading business and best sites to a buyer (often connected to existing management, often retaining most jobs and best lease arrangements) with surplus sites and underperforming locations transitioning to the unsecured creditor pool. The DC London / Pizza Hut UK transaction in October 2025 (64 sites preserved, 1,276 jobs saved) is a recent example of this pattern.
Administration is more expensive procedurally than CVL. It is appropriate where the asset and business value justify the cost — typically multi-site operators, branded operators, or single-site operators with substantial freehold value. For single-site leasehold operators with limited asset value, administration is often disproportionate.
When CVL is the appropriate ending
Creditors' Voluntary Liquidation is the appropriate procedural ending where the business is no longer viable, where structured rescue is unrealistic, and where directors want to bring matters to an orderly close. CVL is initiated by the directors (rather than imposed by creditors) and produces cessation of trading, realisation of company assets by the liquidator, distribution to creditors in statutory order, and investigation by the liquidator of director conduct.
CVL is materially cheaper than administration and is the appropriate procedure for the substantial majority of single-site or small multi-site hospitality failures. Director engagement with the IP early in the CVL process — ideally before HMRC has commenced enforcement — typically produces better outcomes for the directors personally.
Director-specific considerations
Hospitality directors typically face concentrated personal exposure that the procedure must address:
Personal guarantees. Hospitality leases are typically personally guaranteed — either to the landlord directly or through brewery tie/pubco arrangements. Personal guarantees often survive the corporate procedure and produce direct creditor action against the director.
Director's loan accounts. Many hospitality operators run substantial DLA balances — covering personal expenses, capital extracted ahead of dividend declaration, or working capital injected and then withdrawn. The DLA position needs careful review in any procedure — covered in the director's loan account spoke.
Wrongful trading exposure. Continued trading after the point at which insolvent liquidation became unavoidable produces section 214 IA 1986 exposure. In hospitality, the relevant date often crystallises early — VAT arrears, supplier pressure, and lease default produce visible insolvency markers — and continued trading without realistic recovery exposes directors materially. Detailed coverage in the wrongful trading spoke.
HMRC personal liability. Where PAYE/NIC arrears reach significant levels, Personal Liability Notice exposure under section 121C SSAA 1992 can transfer corporate liability to directors personally. Hospitality is a sector where PLN issuance has been notably more active post-pandemic.
The interaction between corporate procedure and personal exposure is the central commercial question for hospitality directors. Early IP engagement allows the personal-exposure dimensions to be assessed and managed alongside the corporate procedure — typically producing better personal outcomes than late engagement after enforcement has commenced.
How IQ Insolvency engages with hospitality operators
Every hospitality engagement at IQ Insolvency is led by a licensed insolvency practitioner from the first conversation. The IP works with sector-specialist counsel where the matter requires it (lease restructuring, brewery tie disputes, transfer of undertakings issues for staff transitions) and engages directly with HMRC, principal lenders, and major suppliers throughout. We do not hand cases to junior staff or call-centre teams — the IP you speak to first is the IP who sees the matter through to the final report.
Initial engagement is free, confidential, and without obligation. The first conversation typically takes 60 minutes and covers the realistic position assessment; the procedural options across CVA, administration, CVL, and informal routes; the director-personal exposure dimensions; the practical timing (HMRC enforcement, lease default, supplier pressure); and the immediate priority steps. Decisions are typically required within days but the framework can be established immediately.
Frequently asked questions
My pub is behind on VAT and the brewery is threatening to terminate the tie. What now?
Multiple-pressure scenarios are common in hospitality. The realistic options depend on whether the underlying business is viable. If yes — a TTP arrangement with HMRC combined with brewery negotiation can sometimes bridge the position. If not — controlled procedure (CVA where the model can be restructured, CVL where it cannot) typically preserves more value than continued trading under increasing pressure. The realistic answer requires an honest assessment of the post-restructuring P&L.
Can I continue trading while we work out the right procedure?
Continued trading is appropriate where there is a realistic prospect of avoiding insolvent liquidation — typically because a specific restructuring path (refinancing, CVA, sale) is in train and reasonably likely to succeed. Continued trading without realistic prospects engages wrongful trading exposure under section 214 IA 1986. The honest answer requires testing whether the prospects are real or aspirational.
Will my landlord be paid in administration?
Landlord arrears prior to administration rank as unsecured. The administrator's use of the premises during the administration period (where the business continues to trade) creates expense-priority rent obligations that are paid as administration expenses. The principle is established by case-law including Goldacre and subsequent authorities. Specific lease terms can vary the position.
Can I lose my home over a hospitality failure?
Whether the directors' personal residence is at risk depends on the personal exposure profile — personal guarantees to landlord/brewery/lender, Personal Liability Notice exposure for unpaid PAYE/NIC, wrongful trading exposure, and DLA position. Where significant personal exposure exists and the directors have substantial home equity, the residence may be at risk. The honest assessment of personal exposure is part of the initial IP consultation.
If I close my company and start again, can I use the same name?
Section 216 IA 1986 restricts re-use of the failed company's name (or substantially similar names) for 5 years following CVL or compulsory liquidation. The restrictions apply to directors of the failed company. Limited exceptions apply (notably the section 216(3) administration sale exemption and the section 217 exception for buying the business under a procedure). Re-use of name without compliance is a criminal offence and produces personal liability for company debts. Detailed advice needed on the specific facts.
How quickly can a hospitality CVL be completed?
CVL appointment can typically be made within 1-3 weeks of initial instruction. The full liquidation process (asset realisation, creditor adjudication, final distribution) typically takes 12-18 months for a single-site hospitality CVL. Director engagement is usually finished within the first 2-3 months — the bulk of the timeline involves liquidator administrative work rather than active director involvement.
Will the staff get paid?
Employees are ordinary preferential creditors for unpaid wages up to £800 per employee for the four months before the relevant date, plus accrued holiday pay (Schedule 6 IA 1986). Where the company assets are insufficient, the Redundancy Payments Service pays statutory employee entitlements (statutory redundancy pay, notice pay, holiday pay, unpaid wages) up to statutory limits, and then becomes a creditor of the company in the insolvency. Most hospitality employees in failed-company scenarios receive payment of statutory entitlements through the RPS.
Can I keep trading the brand from a new company?
Subject to compliance with section 216 IA 1986 (name re-use restrictions) and proper procedural arrangements (typically a pre-pack administration sale), trading continuation under the same brand is achievable. The sale must be at proper value (supported by independent valuation under SIP 16 where it is a connected purchaser), and the new entity takes the business clean of the old company's liabilities. The procedure is more complex than a simple closure and re-start — IP guidance is essential.
Speak to a licensed insolvency practitioner
If your hospitality business is in financial distress — whether facing imminent HMRC enforcement, supplier pressure, lease default, or simply the cumulative cost burden — the first step is a conversation with a licensed practitioner. The conversation will assess the realistic position, identify the procedural options, and outline the priority steps. There is no charge for the initial consultation and no obligation arising from it. Confidentiality is absolute.
At IQ Insolvency, every hospitality engagement is led by a licensed insolvency practitioner from the first conversation. No call centres. No handoffs. One licensed practitioner, start to finish.
