With the budget fast approaching, it is worth looking at the possible implications for the food & drink sector.
National minimum wage
Labour costs represent a major proportion of costs for most food & drink businesses. National minimum wage for 21-24 year olds is due to increase by 6.2% to £8.20 and national living wage for over 25s rising by 6.2% to £8.72, with announcements on future years levels likely on 11 March. For a sector where margins are often already tight, this is an area of concern as the repeat, above inflation, increases across the workforce are a clear challenge to both the profitability and attractiveness to investment (be it debt or equity) and perhaps even solvency of some businesses. This especially affects those at the hospitality end of the sector and where manufacturer routes to market will not support pricing flexibility.
Coupled with this are the proposals to toughen up penalties for non-compliance. Our employment tax specialists have looked at this in more depth here https://www.pkf-francisclark.co.uk/blog/national-minimum-wage-even-tougher-penalties-for-non-compliance-on-the-cards/. A major concern is that there is seemingly no difference in how an employer is treated by HMRC, between those that have breached the rules deliberately and those that have fallen foul of them by mistake, or indeed with the best interests of the employee at heart – by offering salary exchange schemes, for example.
If you have any concerns as to whether your business is compliant with the legislation, our employment tax team offer full NMW health checks, contact Steve Ashworth to find out more.
Environmental issues are certainly a hot topic at the moment with calls for the Chancellor to commit to spend an additional £33 billion per year to meet the Government’s target of net-zero carbon by 2050. However, it now sounds as though these decisions will be deferred until a later date.
However, we could still see measures around the introduction of a plastics tax. As announced back in March 2018, from April 2022 the Government intends to implement a new tax on the production and import of plastic packaging with less than 30% recycled content. The details around what this will look like are expected to be announced in the upcoming Budget.
The tax itself is designed to tackle the problem of single use plastic waste, accounting for 2 million tonnes of plastic packaging in the UK each year.
It is also worth noting that all of the parties in the supply chain where plastic packaging is used could become liable (on the failure of another party) and so this tax may have wider applications than might immediately appear to be the case.
As food and drink businesses, it is important that research is carried out now to find alternatives, to not only avoid unnecessary taxation, but also from a reputational perspective to make sure you are ahead of the game. Where, as we would expect, plastic remains, for the foreseeable future at least, the only safe and viable packaging solution within the sector, the additional associated cost needs to be built into business plans and costing structures. If researching into an alternative, it is important to remember R&D tax credits which can help businesses accelerate its development programme.
In its General Election manifesto, the Conservative Party committed to Britain being “the best country in the world to start and grow a business – a place where entrepreneurs know they can build on their ideas and find success”, but there has been sustained criticism that current tax incentives are not supporting start-ups and successful scale-ups, with Entrepreneurs’ Relief (ER) a particular focus of discontent.
There are therefore questions around whether the relief will be abolished altogether, or reforms put in place perhaps around a longer qualification period, lower lifetime allowance limit and / or requiring a minimum age to qualify for the relief.
The likelihood, in our assessment, is that the government will still be concerned to be seen to be supporting small business and therefore retain the relief but make significant alterations to increase the Exchequer’s ‘tax-take’ which could include:
- Lifetime limit reduction
- Extension of the qualifying time period to say 3-5 years
- Introduction of a working time requirement (such as exists in respective of the EMI incentive scheme)
- Restriction of qualifying trades – perhaps in line with EIS definitions
Whatever form they take, any changes will have an impact on food and drink business owners and their families. We will make sure we keep you informed.
Whilst not something that is explicitly related to the Budget, there will undoubtedly be references to Brexit and trade opportunities now that we have left the EU. Trade negotiations are now underway, with strong messages from Liz Truss, International Trade Minister, about walking away from those negotiations if the UK is not getting what it wants. Whilst this could be seen as a bit of pre-negotiation posturing, the threat of a no deal cannot be taken off the table. PKF Francis Clark has been providing advice and support for businesses in planning for that, and other eventualities including providing training (for which there is 100% potential grant funding support) on how to complete and submit customs declarations https://www.pkf-francisclark.co.uk/blog/deadline-extended-for-uk-government-customs-training-grants/.
There is an expectation that this Budget could be dominated by measures to mitigate the worst effects of Covid-19. As a sector that could be badly affected, from problems with labour supply in processing and manufacturing to a lack of customers for those in the hospitality sector, help for small and medium sized businesses will be key. This could include tax breaks and help with securing loans or grants, we will wait and see.
There will be a number of announcements made on Wednesday that will affect all areas of the food and drink supply chain. Our tax experts will be analysing the measures on the day and during the following days. We’ll make sure you are kept up to date. If you want to speak to us about your food and drink business – please get in touch!