Autumn Budget 2025: Hospitality & Leisure Commentary

The Budget confirmed continued fiscal drag with frozen income tax and NIC bands. Employees will feel the squeeze on disposable income, which is likely to drive wage expectations higher. For a sector already facing recruitment and retention challenges, this means additional pressure to increase salaries without any movement in tax relief.

From April 2026, the National Minimum Wage will rise significantly to:

• £12.71 per hour for those aged 21 and over
• £10.85 per hour for 18–20-year-olds

Given the prevalence of minimum-wage roles in hospitality, payroll costs will increase across front-of-house, housekeeping, kitchen, and casual positions. Employer NIC at 15% compounds this impact, making workforce planning critical.

The salary sacrifice pension cap will also change from April 2029, limiting NIC exemption to the first £2,000 of sacrificed salary. While this will have limited impact on hourly-paid staff, senior managers and executives making enhanced pension contributions will be affected.

The Budget continues to encourage investment through full expensing, allowing a 100% first-year allowance on qualifying plant and machinery. For hospitality businesses, this supports:

• Kitchen, bar, and laundry refurbishments
• Hotel upgrades and fixtures
• Energy-efficient appliances to reduce operating costs and support sustainability goals

A new 40% First Year Allowance applies to businesses caught by leasing restrictions, relevant for operators using leased equipment such as kitchen appliances and POS systems.

However, the writing-down allowance for long-life assets will fall from 18% to 14%, slowing tax relief for projects that do not qualify for full expensing or AIA. This makes planning asset purchases and timing investments even more important.

For business owners, the Budget introduces significant changes:

• Business Asset Disposal Relief (BADR) will increase to 18% from April 2026, impacting those planning to sell hotels, pubs, cafés, or leisure sites.
• Business Property Relief (BPR) will be capped at £1m for 100% relief, with only 50% relief above that threshold. This will affect succession planning for high-value venues and multi-site businesses.
• Dividend tax rates will rise by 2%, making profit extraction more expensive and prompting a review of remuneration strategies.

Business Rates Reform – From April 2026, a new banded multiplier system will replace the current approach. Smaller pubs, restaurants, B&Bs, and independent venues with rateable values under £500,000 are likely to benefit, while larger hotels and branded chains may face higher costs. Businesses should budget for these changes and challenge valuations proactively.

Tourism Levy – The government had previously suggested that tourism tax’s would be limited but have now extended powers to local government to introduce them. While tourism levy’s are common across much of Europe, the rest of Europe also enjoys lower VAT rates on hospitality, and so the introduction of the new levy’s risks making UK hospitality uncompetitive with other European destinations.
This is compounded by the introduction of VAT on taxi services which are likely to be passed onto travellers. Local authorities will have the power to introduce a per-night charge on accommodation. Hotels, hostels, and B&Bs will need new compliance processes and pricing strategies to manage customer sensitivity. While this adds administrative burden, revenue may be reinvested locally to boost tourism infrastructure.

Extended Sugar Tax – The levy now applies to milkshakes and lattes, which could influence menu pricing and recipe reformulation for cafés, coffee chains, pubs, and restaurants.

Alcohol Duty – From February 2026, alcohol duty will rise in line with RPI, increasing drink costs. However, the draught beer duty cut continues, offering some relief for pubs and bars reliant on draught sales.

• Invest now while full expensing and the new 40% First Year Allowance remain favourable.
• Adopt digital and operational efficiency tools to offset rising labour costs.
• Revisit pricing strategies to protect margins, including premium options and service charges.
• Plan succession or business sale strategies early to mitigate upcoming tax increases.
• Prepare for tourist levy compliance and potential business rates increases for larger venues.