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Beyond the balance sheet

Why the hospitality trade needs to think about tax

Chris Thompson 04/10/2017 4 minute read

Matthew Wyatt maps the fiscal matters the hospitality sector needs to plan for post Brexit.

New tax policies could be introduced post-Brexit which would benefit UK tourism and the hospitality trade. With negotiations between the UK and EU on-going, the industry would do well to consider these now.

UK tourism and elements of the hospitality trade have done very well for quite some time. The depreciation of the pound has had a beneficial impact on UK tourism which is currently second only to Spain for growth in Europe. Revenue from inbound tourism jumped by 5% in May and 14% for the year to date.

While more UK residents are traveling overseas, it's at a much lower rate, just 2% more than the same period last year. That's up just 1% on last year. The point being UK staycations have been holding their own.

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The current state of the hospitality sector

In the hotel sector, investment throughout the country, not just London, is extraordinarily strong. Despite the increase in capacity, occupancy in the capital remains high while occupancy levels in the provinces, though much lower, is healthy for well-run establishments.

At the same time, the restaurant industry has been vibrant in some areas. Whilst there are notable failures, poor management has tended to play it's part. Good, quality outlets continue to prosper, albeit amid increasingly competitive conditions, and new concepts are being developed throughout the country.

What about Brexit?

Should the industry worry about leaving the EU? Yes, it should - on a number of fronts. However, it should look to take advantage of the opportunities an exit will present.

The supply of migrant workers, critical to the future success of the industry, is now thankfully recognised by the government. However, it's almost certain that the trade won't have access to as many overseas workers as it thinks it needs.

 

 

So the question that arises is, how to recruit and train more UK-based youngsters? The other issue is how to raise productivity levels to ensure fewer workers are needed in the first place? The quality of staff is the industry's most pressing challenge.  

VAT

There appears little government appetite for a reduced level of VAT on accommodation services, still less on other items such as restaurant meals. After all, there isn't much incentive to reduce a tax when elements of the trade are experiencing booming trade conditions, especially in London. Would a VAT reduction lead to lower prices?

Unfortunately for operators, the Chancellor needs all the revenue he can access as the government continues to grapple a budget deficit and eye watering levels of national debt. That would suggest the campaign to reduce VAT on accommodation services to EU levels appears doomed to failure. 

Breaking free of the EU

Longer term, freedom from the EU may enable the government to look more closely at taxing a wider range of goods and services at different rates and, more pertinently, in different nations or regions of the UK, rather than retaining the current national system of VAT.

Pressure from Northern Ireland and Scotland (possibly even Wales) could realistically lead to variations in their overall tax regimes. Depending on how that progresses, it may be appropriate to apply the same thinking to different regions of England.

Business rates

A bugbear for the hospitality businesses is the current calculation of business rates, especially for those located, like hotels, cafes and restaurants, in busy urban areas where the rates are typically highest. They represent another tax but raised on the basis of rateable value, as opposed to turnover.

Business rates are particularly unfair because some of the huge multi-national corporates are able to escape them. It means the system needs to reform so that it encompasses the Gig economy in the future.

The National Living Wage and National Insurance

Thought should also be given to the National Living Wage (NLW). At present the rate for London might be too low but possibly too high for other parts of the country. The problem is the one-size-fits-all NLW is skewing the labour market - though employers must recognise that wage rates will rise once there is a reduction in the availability of migrant workers following Brexit.

Perhaps there is an argument to use National Insurance (NI) contributions to promote skills and good employment practices, rather than just a flat rate tax? It could be argued that employers who recruit, retain and train UK-based staff should be credited under NI while employers who don't should be made to pay.

Post-Brexit, the UK will have more flexibility in its approach to its tax affairs. The possibility of variations in national taxes and the introduction of more appropriate regional taxes should be considered carefully. Development in Northern Ireland will likely be key.

The government needs to raise tax revenue but they should do so in a fair and flexible manner based on the needs of all nations and regions that form part of the UK, as well at the country's very different sectors. The present national system, dominated by the London economy, isn't necessarily right for other parts of the UK.

The hospitality sector could, to its advantage, now begin to consider how it could make the most of any new-found, post Brexit tax freedoms.

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The content of this post is up to date and relevant as at 04/10/2017.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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