The recent Autumn Budget, delivered by Chancellor Rachel Reeves, brings a mix of tax increases, spending changes, and financial reforms, which are set to affect various industries, with the hospitality and leisure sector facing unique challenges. For businesses in this sector, absorbing these changes will require strategic adjustments to balance new costs against tight profit margins. Here’s an overview of the key changes from the Autumn Budget and what they mean for hospitality businesses.
Rising Staff Costs
One of the most immediate impacts of the new budget will be on staffing costs. Hospitality businesses will need to account for increases in both employer’s National Insurance contributions (NICs) and the National Living Wage:
Employer’s National Insurance Contributions
Starting 6 April 2025, the employer NIC rate will increase from 13.8% to 15%, while the threshold for contributions will drop from £9,100 to £5,000. This lower threshold means employers will begin paying NICs on earnings above £5,000 rather than £9,100, adding significant cost, especially in labor-intensive sectors like hospitality.
National Living Wage and Minimum Wage Increases
From 1 April 2025, the National Living Wage will rise by 6.7% to £12.21 per hour, and the minimum wage for 18 to 20-year-olds will increase by 16.3% to £10.00 per hour. These wage hikes will benefit employees but add financial strain for employers in hospitality, where staffing costs already represent a significant portion of operational expenses.
Employment Allowance Expansion
To help alleviate some of these rising costs, the Employment Allowance will increase from £5,000 to £10,500 from 6 April 2025. This relief, now available to all employers regardless of prior year NIC liability, should provide some financial breathing room.
Although both NICs and wages are typically deductible for tax purposes, meaning they can reduce a business’s taxable income, the combined changes will still add pressure to hospitality businesses with high staffing needs.
Business Rates: Relief Changes and Reforms
Business rates are another area impacted by the budget, with several changes on the horizon:
Temporary Relief Reduction
For the 2024-2025 billing year, retail, hospitality, and leisure (RHL) businesses could benefit from a 75% reduction in business rates. However, this relief will be reduced to 40% for the 2025-2026 billing year. The temporary relief reduction means that hospitality businesses will face higher property tax costs starting next April.
Permanent Relief and Rate Adjustments
Moving forward, the government plans to replace the RHL relief with lower multipliers for properties valued below £500,000, with further reductions for those below £51,000. However, properties valued over £500,000 will be subject to a new higher multiplier rate, potentially increasing tax burdens for larger or high-end establishments.
Ongoing Reforms
As part of the government’s long-term vision, further adjustments to the business rates system are under consideration, including measures to reduce tax penalties on property improvements and expansions, and ways to tackle tax avoidance.
These changes to business rates mean that while smaller hospitality businesses may see some relief, larger or high-end establishments could face significantly higher costs.
“Sin Taxes” and Alcohol Duty Adjustments
For hospitality businesses serving alcohol and soft drinks, the following budget announcements will also have implications:
Alcohol Duty Adjustments
There will be a slight cut in alcohol duty for draught products, reducing costs by an average of 1p per pint. Additionally, small producers of alcohol will see increased relief, helping local brewers and small-scale suppliers. However, for other alcohol products, duty will increase in line with inflation starting 1 February 2025.
Soft Drinks Levy Increase
The soft drinks levy will rise annually from 1 April 2025 to reflect inflation adjustments since 2018, impacting the costs of non-alcoholic beverages popular in hospitality settings.
Preparing for the Changes Ahead
For hospitality businesses, the changes from the Autumn Budget will require careful planning to manage increased costs without sacrificing service quality or profitability. Potential strategies to consider include:
Adjusting Pricing
Increases in staffing and property costs may make price adjustments necessary. Thoughtful pricing strategies, paired with enhanced customer experiences, can help offset the rising costs.
Leveraging Employment Allowance and Other Reliefs
Maximizing the benefits of expanded employment allowances can help offset NICs and wage increases. Taking advantage of available reliefs and deductions will be essential to easing financial strain.
Streamlining Operations
Efficiency improvements, from staffing adjustments to energy management, can help reduce expenses without compromising customer service.
For any questions about how these changes might affect your hospitality business, feel free to reach out to our team at service@agsgroupuk.org.
We’re here to help you navigate these changes and find solutions tailored to your unique needs.
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