You’ve done it. After 15 years of staring at a screen and someone else’s quarterly KPIs, you have finally resigned. The dream is close. Your own coffee shop. Your other half is on board, if a little nervous. The bank, after a polite interrogation, has approved the business loan.
You scout a unit on a side street off a busy road in central London. Some 600 square feet, a big front window, near a row of offices and a short walk from a major tourist attraction. The rent is a bit steeper than you wanted, but the location is perfect. You hand over a five-figure deposit and sign the lease.
Stage one complete.
Next, the decoration. You buy reclaimed timber for the counter, a mid-century pendant lamp from an antiques fair in Bermondsey, and four small canvases from a local artist who mostly paints angry-looking pigeons. The pigeons will undoubtedly become an Instagram favourite.
Then the question of stock. You sit at your kitchen table with a notebook and think about what sort of brand you want your coffee shop to be. You want to do things properly. You want to be the kind of place where the suppliers are paid fairly, the milk comes from a farm whose name you can pronounce and the regulars feel as though they are part of something.
Fair trade for the coffee, organic for the milk.
You ring round half a dozen specialty roasters. Square Mile, Workshop, a small operation in Bermondsey whose head roaster used to be a session drummer. The wholesale price for a decent traceable arabica blend lands at £24 per kilogram. That feels reasonable. You discover, with some unease, that the global price of green coffee has nearly doubled since 2023; arabica futures broke $4 per pound for the first time in history in February 2025. Brazilian drought, Vietnamese floods, US tariffs on Brazilian shipments. None of which are your fault, but all of which are now your problem.
A standard double shot uses 18 grams of dry coffee. You will get about 55 cups out of every kilogram. Your bean cost per drink: 43p.
You set the price of a flat white at £4.20. It feels, if anything, a little cheeky. Your business plan suggests you will sell 250 drinks a day, plus pastries and sandwiches you have agreed to buy in from a small local bakery.
Now you need staff. Three baristas, all over 21, two full-time and one part-time. From April 2026, the National Living Wage is £12.71 an hour. You round up to £13 because you are not a monster, and because the head barista you have poached from a chain wanted £14. Your gross wage bill, including your own modest £40,000 salary, comes to roughly £108,000 a year.
Then your accountant rings.
She has been preparing the payroll. She has good news and bad news. Being an optimist, you ask for the good news first. The Employment Allowance was raised to £10,500 in April 2025 and the £100,000 prior-year cap was abolished, sparing the smallest shops the worst of the new 15% employer National Insurance rate that came in alongside it. Now the bad news. The Chancellor also dropped the secondary threshold from £9,100 to £5,000, frozen there until 2028. With four people on payroll at the wages you are paying, your gross employer NIC bill comes to about £13,500. The Employment Allowance covers the first £10,500. The remaining £3,000 is yours to pay. If you want to take on extra help for the weekend you’ll be paying the full fifteen pence on the pound.
You hire a Saturday cover anyway. People want coffee on a Saturday.
The energy contract arrives in the post. You are quoted 26p per kilowatt-hour for electricity, plus a daily standing charge, plus the Climate Change Levy at 0.801p per unit. The Energy Bill Discount Scheme ended in March 2024. The two-group espresso machine alone, on standby, draws four kilowatt-hours a day. Annual electricity, around £4,500. Gas, another grand if you bother.
The rateable value notice from the Valuation Office Agency arrives in the post. The 2026 revaluation has lifted the unit from £45,000 on the old rating list to £60,000 on the new one. That puts you a hair over the £51,000 threshold and onto the standard retail, hospitality and leisure multiplier of 43p, rather than the small business RHL multiplier of 38.2p that applies below the line. £60,000 at 43p is £25,800. The 40% RHL relief that helped your predecessor in 2025/26 has been abolished. In its place sits a permanent rate cut announced in the Autumn Budget 2024, which on a like-for-like rateable value would have saved the shop several thousand pounds. The 2026 revaluation, however, has eaten the saving and gone back for seconds. UKHospitality warned in November 2025 that “monumental increases in rateable values” were wiping out the benefit of the new lower multiplier. They were not exaggerating.
Exasperated (and a little confused), you phone your accountant again. Transitional Relief, she says, caps the year-on-year increase at 15% for properties in your rateable value band. Your predecessor’s net 2025/26 bill, after the old 40% relief, came out at around £13,500. Add 15% and you write a cheque for roughly £15,500. The shop is on a permanently lower tax rate than it would have been before the reform, and paying more cash than it would have done last year.
The packaging Extended Producer Responsibility scheme came into force on 1 January 2025. The fee for fibre-based composite packaging, which is what your paper coffee cups happen to be, was £461 per tonne in 2025/26 and is due to rise again this year. Your supplier will undoubtedly pass the increase through to you at roughly a penny a cup. Ninety thousand cups a year. Nine hundred pounds.
Card processing. Square takes 1.75% per transaction. Across £463,000 of gross turnover, that is around £8,000 a year handed quietly to a payments company in San Francisco.
PPL PRS, the music licensing collective, charges £618 a year so that you can play the radio without being sued. Thames Water want about £1,500. The accountant: £2,500. Public liability and employer’s liability insurance: £900. Trade waste collection (the City of Westminster does not romanticise the bin lorry): £2,000. EPOS subscription, cleaning supplies, repairs, food hygiene certification: a further £4,000.
Then there is VAT.
A hot drink consumed on the premises is standard-rated at 20%. So is a hot drink taken away. A cold pre-packaged sandwich is zero-rated; a hot panini is not. The 2012 pasty tax debate exists in your kitchen now. Of every £4.20 flat white you ring up, 70p goes immediately to HMRC. Across the year you hand the Treasury about £77,000 in VAT alone. That is more than your employer NICs and your corporation tax combined.
You sit down with your accountant in February to look at the year. Revenue, net of VAT, £386,000. Costs of every kind, £313,000. Operating profit, £73,000. Corporation tax at the marginal rate, £15,600. Net profit, £57,400.
Eighteen-hour days working seven days a week, fourteen months in the build, no holiday. The modest £40,000 salary you take leaves your effective hourly rate less than the head barista’s by a comfortable margin. At least the pigeons are trending and the regulars know your name.
The maths only runs one way from here. Wages will step up again next April. The Green Party are pledging a £15 Minimum Wage for all workers if they win the next election which will knock another £12,500 off the bottom line and require an 18p rise on the cost of your flat white. The coffee shop chain across the road has not raised prices. You will not. You cannot. The customers, themselves squeezed, will simply stop coming twice a day and start coming three times a week.
The latest Hospitality Market Monitor from CGA by NIQ, published in late April, recorded 305 licensed-premises closures in the first quarter of 2026 alone. That is 3.4 a day and the second consecutive quarter-on-quarter contraction. UKHospitality forecast in January that 2,076 venues would close across the year without intervention.
You begin to question why anyone would open a hospitality business now. Rising costs are everywhere. The risk is, you will close, sell, or shrink the offering until the human being is removed from the till and replaced with a touchscreen and a lorry-sized super-automatic machine.
The State, in your case, will have collected something close to £1 from every £4.20 flat white you ring up on your till. Wages are 75p and increasing as minimum wage continues its ascent. Rent was 44p. Business rates, 10p. The Treasury, 70p in VAT and 23p in corporation tax.
The actual coffee, the thing the customer thought they were buying, was 43p. After everything, the shop keeps 60p – so much for building a rainy-day fund.
Your morning latte is expensive because of what surrounds the bean. Tax, rent, regulation and labour now eat almost everything between green coffee and till. The bean is the smallest part of the bill.
Whether you keep paying it is your decision. Whether the shop is still there to sell it to you is somebody else’s.
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