Comments provided by Menzies Partner, Nick Farmer.
One way or another businesses in the Hospitality and Leisure sector will certainly be affected by the tax changes announced in the Spring Budget 2017. Here are some of the key measures:
Spring Budget 2017: Research and Development tax credits
The evidence shows that many companies operating in the hospitality and leisure sector fail to claim Research and Development tax credits. This may be partly due to being unaware of the opportunity, and partly due to the administrative burden of making a claim. In Budget 2017 it has now been announced that the administrative requirements to claim Research & Development relief will be reduced, which should enable more businesses in the sector to claim these valuable reliefs.
Spring Budget 2017: Business rates
The impact of business rate increases on the sector had been well trailed. It has now been announced that extra money will be made available to alleviate the impact of these changes as follows:
- About 90% of pubs will receive extra help, as those with a rateable value less than £100,000 will receive a discount of £1,000 in 2017.
- Any business set to lose their small business rate relief will see the rate increases capped at £50 per month.
- A £300m fund will be made available to local councils to offer discretionary relief for the worse hit firms.
Spring Budget 2017: Self-employed
Many people working in the sector do so as self-employed individuals. Those paid more than £16,250 will see their tax rates rise from April next year, with Class 4 National Insurance (currently 9%) rising to 10% in April 2018 and 11% in April 2019. This compares to the 12% paid by employees. Those paid less than £16,250 will be better off due to the planned abolition of class 2 NIC in April 2018. The 2% rate for Class 4 National Insurance on profits exceeding the 40% income tax limit will remain the same.
Spring Budget 2017: Personal service companies
It’s also the case that many people in this sector operate through personal service companies, taking advantage of the low corporate tax rates, and then extracting the funds by way of dividend. The dividend changes introduced from April 2016 made this structure more expensive for many business owners, although if dividends could be kept below £5,000 they could benefit from a tax free allowance. However, from April 2018, this tax free dividend allowance reduces from £5,000 to £2,000, increasing the personal tax cost for many business owners operating in this sector.
Spring Budget 2017: Sugary drinks
Tax on drinks with more than five grams of sugar per 100ml will be levied at 18p per litre, and those with 8 grams or more of sugar per 100ml will have an extra tax of 24p per litre. Consequently businesses in the hospitality sector are likely to see the cost of purchasing these drinks rise, although it is anticipated that many manufacturers are likely to respond by reducing sugar levels in drinks so that this levy will ultimately achieve its overall behavioural change and possible health benefits for the consumer.
Get more input on the Spring Budget 2017 implications for the Hospitality & leisure sector by speaking to our sector team.
Find out more about the Menzies Hospitality & leisure business services.