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The Autumn Budget 2021 contained some mixed news for the hospitality industry. There was potentially good news with alcohol duty reforms promising a more simplified system and some duty savings to come.
There has also been an extension to the period for which businesses can obtain 100% tax relief on qualifying capital expenditure. Business rate savings have been announced but these were accompanied by suggested reforms that may not have been as wide-ranging as hoped.
Many were disappointed there was no extension to the temporary reduced rate of VAT which had been called for. With increased wage costs and national insurance costs, as well as significant borrowing costs to repay from covid-pandemic support, will today’s announcements do enough to support the industry?
Alcohol duty reform
Rishi Sunak spent some time setting out how alcohol duty will be reformed. However the rates stated in his speech were part of a consultation document and are not proposed to come into effect until February 2023!
The proposals include simplifying the current 15 main rates to only six rates and the rate will be based on alcoholic strength (ABV – alcohol by volume) as opposed to the volume of finished product, as is currently the case for some duties.
These changes may bring some welcome duty reductions to prosecco drinkers as well as fruit ciders. Draught relief is being proposed which will cut duty on draught beer and cider by 5%. Craft producers are also being promised lower duties which will be good news for these industries. Alcohol duty will be frozen for one year from 1 February 2022.
Annual investment allowance
Many businesses have become used to obtaining 100% tax relief in year of expenditure on the majority of their qualifying expenditure. The £1m limit for this 100% relief was due to reduce to only £200,000 from 1 January 2022, but the £1m limit now remains in place until 31 March 2023. This provides welcome tax relief to many businesses who may have been struggling to fund all capital improvements by the end of this calendar year.
As previously announced in March, companies may benefit from a 130% super-deduction on expenditure until 31 March 2023 when the main corporation tax rate is to rise from 19% to 25%.
Business rate review
The conclusions to the long-awaited business rates review were published today and initial concerns include that this has not dealt with many of the difficulties and issues in the current system. There was some good news for the retail, hospitality and leisure sections in 2022/23 with a 50% rates discount up to a cash cap of £110,000 per business.
Improvements to existing properties are also promised 12 months of 100% business rates relief, support has been offered for rates for green technologies and an extension to the small business and transitional relief schemes into 2022/23. However, if on-going reforms are not effective then business rates will continue to be a significant cost and may cause ongoing issues and debate going forward.
Increased employment costs
As well as many employers struggling to find and retain staff post Brexit and since the pandemic, employers should be aware of the significant increase to the national living wage (to £9.50 per hour from April 2023 for those aged over 23).
This 6.6% increase in the minimum wage is more than twice the current 3.1% rise in the cost of living. Increases are also being implemented for younger workers as part of the government’s target to end low pay. These increases hit hardest in sectors such as hospitality where many staff are on the minimum wage.
Rushi Sunak had already announced on 7 September 2021, that the government is introducing a new 1.25% health and social care levy to fund the NHS and social care. These costs will be added to employee and employer contributions from April 2022 before being separated out to being a separate level from April 2023.
The impact on increased employment and NIC costs, rising energy bills and rising direct costs are likely to lead to price rises in the industry in order to maintain an acceptable profit margin.
Whilst we are hoping that the hospitality, hotel and holiday accommodation and attractions sector would benefit from an extension to the temporary reduced rate of VAT, it now appears that the rate will revert to 20% from 1 April 2022.
Even though there is still hope of a later change of heart, businesses should plan to take advantage of the lower 12.5% rate by taking payment in full before 1 April 2022 or issuing full VAT invoices to customers for events or stays that take place after 1 April 2022.
So overall today was a bit of a mixed picture on announcements for the industry. With hopes of future reforms providing help to some businesses, the significant cost increases are going to remain an ongoing challenge.
For more Autumn Budget analysis, visit our Budget hub.