What does the budget mean for the Retail and Hospitality sector?
The hospitality sectors have been hardest hit during the pandemic and so were singled out for some additional support in the 2021 Budget.
Alcohol duty reform
As we have been cut loose from abiding by EU regulations, the Chancellor was keen to show he is using these new freedoms and has announced a proposed simplification to the alcohol duty regime following a previous call for evidence. The proposals are subject to consultation until 30 January 2022 and aim to make the regime fairer and more conducive to product innovation.
The announcements aim to simplify the duty system, reducing the number of main rates from 15 to 6, and taxing all products in proportion to their alcohol contents.
All tax categories (e.g. beer, wine) are proposed to move to a standardised set of bands, with rates for products between
- 2-3.4% alcohol by volume (ABV),
- 5-8.4% ABV,
- 5-22% ABV,
- and above 22% ABV.
Above 8.5% ABV, all products across all categories will pay the same rate of duty if they have the same proportion of alcohol content. The government will also simplify the way businesses register and pay for duty, ending the practice where individual products have different administrative rules.
It is proposed that alcohol will be taxed in a progressive manner, ensuring higher strength products incur proportionately more duty. New rates will be introduced for low strength drinks below 3.5% ABV with the intention of encouraging manufacturers to develop new products at lower ABVs.
The government will also introduce a new small producer relief, (in the same vein as the Small Brewers Relief) for cidermakers and other producers of lower ABV drinks.
To help pubs the government proposes to cut duty rates on draught beer and cider by 5%, taking 3p off a pint. In addition, the duty rates on beer, cider, wine and spirits will be frozen for another year.
All of the above measures are subject to consultations and are expected to be implemented from 1 February 2023.
A reform of business rates has been on the cards for some time and although the Chancellor has rowed back on a full reform, he did announce a package of reduction worth £7 billion over the next five years and will consult on an Online Sales Tax, the revenue from which would be used to reduce business rates for retailers with properties in England to help level the playing field between traditional retailers and online sellers.
Retail, hospitality and leisure properties will be eligible for a new, temporary 50% reduction in their business rates relief next year, capped at £110k pa. This will provide support until the next revaluation in 2023 followed by revaluations on a 3-year basis rather than every 5 years. There is also a freeze to the business rates multiplier in 2022-23 for all ratepayers meaning bills are 3% lower than without the freeze.
From 2023, two new business rates reliefs will be introduced:
- a 100% improvement relief, providing 12 months relief from higher bills for occupiers where eligible improvements to an existing property increase the rateable value. An example given by the Treasury of who could benefit from this measure is a hotel adding additional rooms which would have typically increased their rates bill.
- an exemption for eligible plant and machinery used in onsite renewable energy generation and storage, such as rooftop solar panels and battery storage used with renewables and electric vehicle charging points, from 2023 until 2035. A 100% relief will also be provided for eligible low-carbon heat networks that have their own rates bill.
The temporary £1 million level of the Annual Investment Allowance which was due to expire on 31 December 2021 has been extended to 31 March 2023. Whilst most businesses acquiring new plant and machinery will benefit from the Super Deduction in any case, the increase to the AIA will be useful for used plant, long-life plant or fixtures within buildings that do not qualify for the Super Deduction.
National Living Wage
The increases to the national living wage announced before the Budget will impact on the hospitality sector.
The rate for those aged over 23 will rise to £9.50 an hour from £8.91, a 6.6% increase and The National Minimum Wage for people aged 21-22 will rise from £8.36 to £9.18 an hour and the Apprentice Rate will increase from £4.30 to £4.81 an hour.
Health & Social Care levy
The budget has confirmed the new 1.25% Health and Social Care Levy (the Levy), to fund investment in the NHS and social care will, as expected, take effect from 6 April 2022.
The Levy will apply to all of the UK, for those subject to Class 1 (employees and employers) and Class 4 National Insurance contributions. It will not apply to those paying Class 2 or Class 3 National Insurance.
From 6 April 2022, the Levy will mean a 1.25 percentage point increase in the national insurance rates.
From 6 April 2023, the national insurance rates will return to current levels and the 1.25% Levy will be formally separated out and will also apply to the earnings of individuals working above State Pension age.
Temporary VAT reduction
A temporary reduced rate is currently in force until 31 March 2022 which means the following supplies currently attracting the reduced rate of 12.5%:
- Hospitality: supplies of hot and cold food and drink to be consumed on the premises and supplies of hot takeaway food and drink to be consumed off the premises
- Accommodation: the provision of hotel and holiday accommodation, pitch fees for caravan parks and tents and related facilities
- Attractions: admission to attractions not covered by the cultural exemption
There was no extension to this reduction and so the VAT rate will return to the standard rates after 31 March 2022.
Air passenger duty
Air passenger duty for domestic flights will be lowered from April 2023 by 50%, but duty is set to increase on long-haul flights so whilst it may encourage UK tourists it may well disincentivise overseas travellers.
If you’re unsure of how the Budget will impact you, speak to a member of the team today!
To read further news on the budget click here.