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The Chancellor’s Autumn 2021 Budget and Spending Review included support for businesses trying to rebuild after the pandemic. It was received with particular interest by those in the hospitality sector, still reeling from Covid lockdowns and a downturn in the economy.

Some background: What help was already on offer for the hospitality sector?

The hospitality and leisure sector went through a particularly challenging time during the pandemic. As industries built on social contact and interaction, the need to remain distant was a huge obstacle to business.

The government devised a package of general measures, including the furlough scheme and bounce back loans. Recognising the particular problems that businesses working in hospitality were facing, the government also unveiled:

  • A temporary reduction to the VAT rate for hospitality sector businesses
  • Business rates relief

The reduced VAT rate for hospitality and leisure businesses

Lockdowns, staff shortages and supply issues have hit this sector hard. Back in July 2020 a temporary rate of 5% VAT came into force to help lessen the blow.

This temporarily reduced rate of VAT applied to restaurants and food outlets, hotels, holiday accommodation, and some tourist attractions. In September 2020 the Chancellor announced an extension of the 5% rate until 31st March 2021. It was then extended again until 30th September 2021.

The VAT rate then rose to 12.5% from 1st October onwards, where it stays until 31st March 2022.
 

Temporary VAT reductions in the Hospitality sector

Business rates relief

At the height of the pandemic last year, the government also gave a temporary 100% business rates relief to retail, hospitality, and leisure businesses in England for the 2020 to 2021 tax year.

Despite hopes that this latest Budget would extend this relief, the government is now offering 50%. Whilst better than nothing, it isn’t something many hospitality businesses welcome, predicting a very hard winter ahead.

None-the-less, a huge range of businesses in the industry are set to benefit from the new rate, said to be worth around £1.78 billion to businesses in the industry.

Mr Sunak in fact tweeted that the proposal does reflect recommendations from the Confederation of British Industry (CBI) and the British Retail Consortium. He added that when combined with Small Business Rates Relief, “over 90% of all these businesses will see a discount of at least 50%”.

The government has also confirmed the relief will be capped at £110,000 per business.
 

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What else has the latest Budget offered for leisure and hospitality businesses?

All is not lost! There are quite a few things to consider, not to mention the ways which businesses can maximise temporarily reduced VAT rates between now and March. Some of these apply to both customers and suppliers, so businesses that don’t actually come under hospitality may also be affected.

Who will benefit?

Most businesses that benefitted from the 5% reduced rate of VAT are now also benefitting from the new 12.5% rate. They include:

  • Food and non-alcoholic drinks sold for customers to consume onsite, for example, in restaurants, pubs and cafes
  • Hot food to take away
  • Hot takeaway non-alcoholic drinks
  • Admissions to attractions that aren’t already able to claim the cultural VAT exemption. These establishments include cinemas, theatres, zoos, circuses, amusement parks, fairs, concerts, exhibitions, and museums
  • Sleeping accommodation, like hotels, holiday accommodation and campsites

 

Who will benefit from the reduction VAT rate?

Are you using the Flat Rate Scheme?

A quick detail to note: If you operate a small business and use the VAT Flat Rate Scheme to simplify your VAT calculations, it’s important to be aware that certain percentages have been cut. This aligns them with the introduction of the temporarily scaled down rate of VAT.

What do businesses in the hospitality industry need to do next?

Business owners don’t need to do anything to benefit from the business rate relief changes. Discounts will be applied to your bill automatically.

Don’t forget, you can estimate the business rate relief using the government’s business rates calculator. If you think you’re not getting the relief your business is entitled to, you should also contact your local council.

VAT registered businesses in the hospitality industry should have already set up their tills and accounting systems to correctly apply the increased rate of 12.5%. This will then need to be done again from 1st April 2022 to reflect the 20% rate returning to normal.

Changes to duty on alcohol

As part of the 2021 Autumn Budget, the government also unveiled some notable changes to the duty on alcohol.

Scrapping the current tax bands

The first change is that the 16 current tax bandings on alcohol will be scrapped, a move the Chancellor says will make alcohol taxation simpler. He then revealed that current duty rates on beer, wine, cider, and spirits will be frozen for the next 12 months and organised into 4 bands depending on the percentage volume of alcohol. Essentially, the stronger the drink, the higher the rate.

Small producer relief

A new small-producer relief is also being launched for smaller/artisanal producers of alcohol products which have an ABV below 8.5%. The aim of this new relief is to encourage innovation in products from smaller producers.

Draft beer duty cuts

Finally, the government is introducing a 5% cut in duty for draft beer, a move which is set to support smaller local pubs which serve their community. The reduction will apply for cider and draft beer kegs of 40 litres or more, targeting savings at pubs and restaurants as opposed to those who drink at home.

Do these changes apply to the whole of the UK?

No. The 50% business rate relief we mentioned earlier will only apply to England, as Scotland, Wales and Northern Ireland will make their own devolved decisions.

The business rates multiplier will also be frozen in England only for a second year from 1st April 2022 until 31st March 2023. This means the multipliers remain at 49.9p and 51.2p.

What’s happening in Scotland, Wales, and Northern Ireland?

Scotland, Wales, and Northern Ireland have their own devolved governments and set their own budgets.

In Wales, all businesses and charities that operate in the leisure and hospitality sectors have already been receiving a 100% discount in light of the pandemic. However, the Welsh Assembly will hold its own budget in December where things may change.

  • Under the Welsh scheme, retailers in properties with a rateable value of up to £500,000 are getting a full discount on their rates until the end of this year.
  • In Northern Ireland, the Northern Ireland Executive announced in March that business rates holidays were being extended in certain sectors – including hospitality – for a further 12 months to run until March 2022.
  • The Scottish government already has a discount in place for businesses in the retail/leisure sectors, which is capped at £110,000.

What other help is available?

There is further financial assistance which doesn’t just apply to the hospitality sector exclusively, which may be of help. This includes:

  • A 100% improvement relief for business rates where a business has made improvements that would increase its rateable value. However, this new relief won’t come into effect until 2023, with a review set for 2028.
  • A 100% business rate exemption for onsite renewable energy generation and storage equipment. This is in addition to a 100% relief for eligible heat networks. It’s designed to encourage decarbonisation projects relating to non-residential buildings.
  • Business rates revaluations will also occur every 3 years instead of every 5, starting in 2023. The Treasury has said that this will help the regime keep up with economic changes.

Annual investment allowance

Annual investment allowance has been around for many years, allowing businesses to obtain 100% tax relief on the majority of their qualifying expenditure, up to £1 million.

This £1 million limit was due to reduce to £200,000 from 1st January 2022. It’s since been extended until 31st March 2023. The move has been welcomed by many businesses who are struggling to fund all their capital improvements by the end of 2021.

As announced previously in March, companies may also benefit from a 130% super-deduction on expenditure until 31st March 2023 when the main rate of Corporation Tax will increase from 19% to 25%. It’s worth noting that the rise affects businesses at different rates, depending on turnover.

Rural rate relief

Again, not a new one but well worth a mention – especially if your business is located in a rural area with a population of less than 3,000 people.

Essentially, your business won’t be subject to business rates if it is in an eligible area, and it is either:

  • The only post office or village shop, with a rateable value of £8,500 or less
  • The only petrol station or pub, with a rateable value of £12,500 or less

Contact your local council to see if your business is eligible and to make your application for rural rate relief.

 

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About The Author

Beth-Anne Karellen

I'm an experienced and fully AAT and ACCA qualified accountant, who is enthusiastic about helping business owners succeed. I also love cooking and needlepoint (at different times!). Learn more about Beth.

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