By Russell Nathan, Senior Partner at HW Fisher (www.hwfisher.co.uk)
In the Autumn Budget, Chancellor Rishi Sunak unveiled a series of policies designed to support the recovery of the hospitality industry. As one of the hardest hit sectors in recent years due to Brexit and the Covid-19 pandemic, many pubs, hotels, and restaurants were eagerly waiting to learn what level of help that they would receive as they head into the new year.
Key changes included –
• VAT: At the moment the industry is very much enjoying a reduced rate at 12.5%. However, this is set to revert back to 20% from the 1st April 2022.
• Employment costs and National Minimum Wage increase: The industry will take years to recover from the impact of the pandemic, especially as they are currently paying higher costs due to inflation and an increased National MinimumWage. The implementation of the 1.25% health and social care levy from April 2022 will also increase pressure on the P&L of many pubs, hotels, and restaurants.The freezing of personal income tax thresholds will also have an impact on employees themselves, as the increase in minimum wage will mean that lower paid workers will be paying more tax than they would have done when personal allowances were raised in line with inflation.
• Business rates: Continued government support will play a key role in the recovery of many hospitality businesses. Fortunately, it has been announced that for the 2022/23 financial year, the hospitality and leisure sectors will receive a 50% rate discount up to a cap of £110,000 per business.
• Annual Investment Allowance (AIA): Pubs, restaurants and hotels will more than likely need to undergo significant refurbishment.To support this, the government has maintained the AIA with a £1 million limit to 31st March 2023. This will provide businesses some much-needed relief if they are able to raise the funds needed to carry out the investment.
• Alcohol Duty Reform: This duty has been simplified in a new system that will see alcohol taxed based on its alcohol content. Stronger drinks, including spirits, will pay higher rates while weaker drinks, such as fruit ciders, wine, and lower strength beers, will pay lower rates. The 28% duty premium on sparkling wines has also been cut, which will mean businesses will pay the same duty as still wines of a similar strength. Pubs and bars will benefit from a 5% cut on duty on draught beer and cider from barrels of more than 40 litres.This marks the biggest cut to beer duty in the past 50 years.
All of these steps are welcome news for a struggling industry. However, is it enough for a long-term recovery? Only time will tell. Funding in other areas such as local cultural heritage sites, and transport infrastructure, will eventually have a positive knock-on effect for the hospitality industry. However, this will be much further down the line.
I believe that much more should be done. In comparison to the level of support shown to the industry in the height of the pandemic, many hoteliers and restaurateurs will have been disappointed by the Chancellor’s announcement. I would urge the government to consider extending the VAT cut beyond 2022 to give all the pubs, hotels, and restaurants in the UK a better fighting chance.