Matthew Wyatt FCA looks at how rates vary for different types of hospitality business and the need for reform.
Brexit is dominating the government agenda and this is potentially bad news for businesses, especially those in the hospitality trade. Many independent operators are trading in market conditions comparable to a perfect storm. Unfortunately ministers continue to procrastinate over the significant issue that is of even more immediate interest than Brexit: the revision of business rates.
Business rates explained for different hospitality entities
The current system, with its recent hugely upward revaluation of business rates, is causing havoc in the industry, driving some operators into closure; others face mounting pressure on their profit margins, already under siege from annual increases in the National Living Wage and other payroll related costs.
The present system is complex in terms of the rules of how it works. Business rates for hotels are largely based on turnover. However, for restaurants it's based on the property’s open market rateable value. For pubs on the other hand, rates are based on the annual level of trade that a pub is expected to achieve if operated in a reasonably efficient manner.
Unfortunately rates are revised at irregular intervals so any increase, as occurred in 2017, is likely to be significant because the revision is compared to five or more years previously.
A tax that needs reform
There are further drawbacks. Why is there a different way of calculating this major business expense for the three key areas that make up hospitality industry? What is the difference, in today’s operating conditions, between a restaurant and a gastro pub? Or even between a pub that serves food (as almost all do) and a restaurant that serves drinks (as almost all do)?
Why should a hotel be penalised for investing in the business by adding rooms and facilities (thereby increasing its revenues), which, as a result, causes it to pay higher rates? This, in effect, is a tax on investment.
For most hospitality businesses, the business rates issue is far more immediate and thus damaging than Brexit. Unfortunately you wouldn’t think so from the ponderous action by the government to reform them.
No doubt a priority issue for UKHospitality once the merger of BHA and AMLR is completed?
The content of this post is up to date and relevant as at 05/03/2018.
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