Tax increases the Government may be devising in order to recover expenditure from dealing with the pandemic need to be cautiously measured. This would aid in preventing additional problems for the hospitality and leisure sector as they continue to fight with a worsening trading environment .
Reports circulating have proposed that Chancellor Rishi Sunak may be preparing to increase the rate of Capital Gains Tax (CGT), to potentially as high as 45%. Hospitality and leisure experts at Menzies LLP are suggesting that this could reduce entrepreneurial business strategies and make it tougher for businesses in the sector to invest capital towards in job creation and productivity developments.
Chris Maloney, partner said:
“While some tax increases are expected, any decision to increase CGT above 38%, the current rate of tax that applies to share dividends, could have a devastating effect on the hospitality and leisure sector. Entrepreneurs would no longer have any tax incentive to invest in building up the value of a business in order to realise gains at the point of sale. The flow of investment into entrepreneurial businesses could start to dry up as a result, undermining the sector’s fragile economic recovery.”
To circumvent additional business problems, Maloney suggests a measured approach. He said:
“The last 18 months have been particularly difficult for the hospitality and leisure sector, which is now a third of the size it was before the pandemic. The industry is currently facing a major staffing crisis, with job vacancies at their highest ever level. The Chancellor should consider introducing schemes and initiatives designed to mitigate this issue and address skills gaps by encouraging recruitment.
“Both the Covid-19 pandemic and Brexit have contributed to rising costs and materials shortages too. Further shocks for businesses must be avoided and any tax increases should be phased to minimise collateral damage for the economy.”
In April 2023, the corporation tax rate is due to increase from 19% to a rate of 25% and prior to this in April 2022 a rise in the employer NICs by 1.25% is planned. Evidently, the tax environment for businesses in this sector is becoming more demanding.
Chris Maloney adds: “For SMEs in particular, as headline rates of Corporation Tax and Employer NICs start to increase, it becomes even more important to manage inflationary pressures on the cost base carefully, to remain viable.
“Currently, the VAT rate has been reduced to 12.5% for the sector but this is due to rise to 20% in April 2022. We would really like to see this lower rate maintained for the foreseeable future, if not permanently. This would help to get more customers through the doors, helping businesses to continue trading and protecting jobs for staff.”