Budget Opinion Special by Andrew Ball
Chancellor George Osborne concluded today that “this is a Budget for the makers, the doers and the savers”. So which of these describes the hospitality sector? I think that we must sit in the doers category (I’m not sure that we are makers and we are definitely not savers!). So having concluded that, what is it that the Chancellor has allowed us to do with the latest Budget announcement?
For me, this breaks down into three major parts:
1. “Do” capital investment for the future
Osborne’s increase in the annual investment allowance, where qualifying capital expenditure obtains 100% tax relief, from £250,000 to £500,000 until December 2015 was probably the single most beneficial announcement in this year’s Budget for the hospitality industry.
Although many businesses brought their capital expenditure forward to meet the existing deadline of December 2014, the new limits are of real benefit to pubs, bars and restaurants where fit out and refurbishment projects are often far in excess of the previous limits. Further, the extension to 31 December 2015 means capital improvement programmes can be revisited and tailored to take advantage of this enhanced maximum limit.
An encouragement to invest in capital improvements is also supported in the Budget by the extension to 100% capital allowances for businesses investing in new plant and machinery in Enterprise Zones to 31 March 2020 and by the addition of certain energy and water efficient technologies to the enhanced capital allowance list.
All of this places even more importance in identifying the capital expenditure which qualifies for capital allowances and considering the use of energy efficient plant and machinery when planning for a refurbishment.
2. “Do” attract investors to new projects
The availability of seed capital has been especially important for restaurants and pubs where the costs of getting started are often prohibitive. We are seeing more and more individuals taking advantage of the generous tax reliefs available to invest in new ventures and this should only continue with the government today making the Seed Enterprise Investment Scheme (“SEIS”) permanent. This includes the 50% reinvestment relief for individuals reinvesting gains in SEIS qualifying companies which was previously expected to cease on 5 April 2014.
As I described at the November Propel conference this extension, along with careful planning, allows investors to combine SEIS and EIS for maximum tax relief.
The government is also to consult on the use of convertible loans when investing under both EIS and SEIS which should further widen the scope of investment available from private individuals.
3. “Do” attract customers into sites and employees into work
The increase in the personal allowance to £10,000 for 2014/15 and £10,500 in 2015/16 brings more taxpayers out of the charge to tax meaning more money in the pocket of customers. There is, through changes to NIC rules, also support for many of the lower paid workers in the hospitality sector which should improve the quality of employees in the industry.
In conclusion, I rather think that the Chancellor has (at least) one eye on next year’s General Election as this was very much a Budget for the individual rather than the company, with pension reform leading the way.
And so while there was good news for the hospitality sector, there are no groundbreaking announcements that will affect the industry; and despite lobbying, the hope for a reduction in the VAT rate for the sector was not forthcoming this time.
As expected the Chancellor continues plans to remove the top rate of corporation tax by lowering it to 21% in April 2014 and 20% in April 2015, without any associated decrease in the small company rate. In doing so he has further removed one of the competitive advantages for the many small businesses operating in our sector.
For the second year running the Chancellor has brought cheer to the pub industry with a further drop in alcohol duty by a penny on a pint, freezing of duty on spirits and ending the much maligned duty escalator on wine. Whether this is enough to stop the continuing trend of pub closures or not only time will tell but it at least shows that the significant lobbying of the industry has proved beneficial.
Of course, if all else fails we can always “do” bingo halls where tax rates have been halved to 10%.
Andrew Ball is a partner at haysmcintrye, the leading mid-tier firm of chartered accountants with 27 partners and 150 staff. The hospitality team has extensive experience in advising hotels, restaurants, pubs, bars and leisure clubs. Andrew can be contacted at firstname.lastname@example.org