Budget 2021 Round Up for the Hospitality Sector

The Autumn Budget 2021 was a mixed bag for the hospitality sector. The Chancellor, Rishi Sunak, announced an extension to the period for which businesses can obtain 100% tax relief on qualifying expenditure. He also announced an overhaul of the ‘dated’ alcohol duty system, promising a more simplified system and some duty savings to come.

Business rate savings were also announced buy were caveated with suggested reforms of business rates that were not as far reaching as hoped by many in the sector.

There was further disappointment that there was no extension to the temporary reduced rate of VAT. Combined with a significant increase to the national living wage and the already announced 1.25% health and social care levy, is enough support being given to a sector badly hit through the pandemic?

Annual Investment Allowance 

The Annual Investment Allowance (AIA) has been at £1m since 1 January 2019 and, for many businesses, has allowed 100% tax relief in year on the majority of qualifying expenditure. This limit was due to be reduced to £200,000 from 1 January 2022. However, the Chancellor announced that this £1m limit will remain in place until 31 March 2023. This announcement is welcome news for many businesses, who were struggling to fund their capital improvements before 31 December 2021.

Alcohol Duties 

The Chancellor confirmed that Alcohol Duty, which has been planned to increase, would be frozen until February 2022.

He also outlines on reforming the ‘dated’ alcohol duty system which are part of a consultation document. These proposals are not due 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 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 niche segments of the industry.

Business Rate Review

The Chancellor confirmed that for 2022/23 businesses in the retail, hospitality and leisure sectors will receive a 50% rates discount, up to a cash cap of £110,000 per business.

It was also announced that improvements to existing properties will receive 12 months of 100% business rates relief.

The conclusions to the business rate review were published 27 October and initial comments from the sector that the review has not dealt with many of the difficulties and concerns within the current system.

Rising Employment Costs

Following the recommendations of the Independent Low Pay Commission it was announced that the national living wage will see a significant uplift to £9.50 per hour from April 2022 for those aged over 23. The government has also accepted the recommendations for the other NMW rates to be increased.

From 1 April 2022, the hourly rates of NLW and NMW will be:

• £9.50 for those 23 years old and over

• £9.18 for 21-22 year olds

• £6.83 for 18-20 year olds

• £4.81 for 16-17 year olds

• £4.81 apprentice rate for apprentices under 19, and those 19 and over in their first year of apprenticeship

These increased, whilst welcome news for employees, hit employers hardest in sectors such as hospitality and leisure where many staff are on the minimum wage.

The Chancellor had previously announced on 7 September 2021, the introduction of a new 1.25% health and social care levy to fund the NHS and social care. This increase will be added to national insurance rates for both employers and employees for the 2022/23 tax year before being shown as a separate levy from April 2023.

The impact of these changes, along with rising energy bulls and general inflationary pressures on costs, could impact significantly on the bottom line and will require significant consideration for businesses to maintain profitability.