Autumn Budget 2024 – Hospitality and Leisure Sector

Last week’s Budget contained a number of announcements which will have an impact – direct or indirect – on businesses operating in the hospitality and leisure sector.  Overall, the Budget looks set to significantly increase financial pressure on the sector. 

Staff costs

Most notably, businesses will need to absorb or pass on to their customers the increases in employer’s National Insurance contributions and the National Living Wage.  With effect from 6 April 2025, the rate of employer’s national insurance contributions (“NICs”) will rise from 13.8% to 15% and the threshold at which it becomes payable will drop from £9,100 to £5,000. The government has indicated its intention to maintain the threshold at this level until 5 April 2028, following which it will increase in line with the CPI. 

Another cost to be considered from 1 April 2025 is the National Living Wage which will increase by 6.7% from £11.44 to £12.21 per hour and the National Minimum Wage for 18 to 20 year olds which will increase by 16.3% from £8.60 to £10.00 per hour, with the latter increase representing the first step towards aligning the two rates. 

The increases will be mitigated at least to some extent by the expansion of the employment allowance, a relief which operates to reduce a business’s employer’s NICs liability.  With effect from 6 April 2025, the allowance will rise from £5,000 to £10,500; additionally, the allowance will be available to all employers, rather than being confined to those whose employer’s NICs liability in the previous tax year was less than £100,000. 

Of course, wages and employer’s NICs are usually deductible in calculating profits for corporation tax or income tax purposes, so the increases will also be partly mitigated by the accompanying corporation or income tax saving, at least for those businesses which have sufficient taxable profits against which to set the deductions.  

Business rates

In the current billing year (1 April 2024 to 31 March 2025), businesses in the retail, hospitality and leisure (“RHL”) sector can benefit from relief of up to 75% on business rates up to a maximum of £110,000.  This relief is a Covid-era legacy and has been expressed to be temporary.  The government has announced its intention to reform business rates generally, including a permanent RHL relief. 

As an interim measure pending the permanent reforms, for the billing year 1 April 2025 to 31 March 2026, the RHL relief will reduce to 40% (with the cap of £110,000 remaining).  More generally, for the same year, the small business multiplier (the multiplier applied to properties with a rateable value of less than £51,000) will be frozen at 49.9p, with the standard multiplier rising to 55.5p. 

The permanent reforms are scheduled to then take effect from the following billing year (1 April 2026 to 31 March 2027), and will consist of replacing the RHL relief with lower multipliers for RHL properties with a rateable value below £500,000, with the most generous reduction to the multiplier being targeted at RHL properties with a rateable value below £51,000.  In order to fund these lower RHL multipliers, a new higher multiplier will apply to properties with a rateable value of £500,000 or more; although this increase is expressed to be targeted at large warehouses owned by online distributors, the suggestion seems to be that it will capture all properties in this value range, which would include RHL properties at the high end of the market.  The new multipliers will be announced at the Autumn Budget 2025. 

Further reforms of business rates will also be explored, including measures to try and ensure that the system does not disincentivise improvements and expansion, measures to tackle avoidance schemes, whether there is merit in more frequent revaluations and whether revaluations should continue to take into account movements in the wider property market. 

The impact of these reforms will only start to become clear as further details emerge, but there is no guarantee that the new RHL multipliers, when combined with the revaluation and any other reforms, will not further increase the tax burden for many businesses in the sector, albeit perhaps to a lesser extent than for businesses in other sectors.  Moreover, it seems fairly likely that any such relative benefit will accrue only to smaller RHL businesses, with the burden on businesses operating out of higher value properties set to increase significantly.  In the meantime, the interim measure (which represents a reduction to the existing temporary relief) will certainly increase the tax burden on the sector across the board. 

As with employer’s NICs, it should not be forgotten that business rates may be deducted in calculating taxable profits for corporation tax or income tax purposes. 

“Sin taxes”

The Budget features a small cut in alcohol duty for qualifying draught products (i.e. alcoholic drinks of less than 8.5% alcohol by volume packaged in containers of 20 litres or more designed to connect to a pressurised gas delivery system or a pump delivery system for dispensing drinks), which should amount, in practice, to a 1p reduction in duty for the average pint of beer, as well as an increase to small producer relief (a relief from alcohol duty for small brewers).  For alcohol products other than qualifying draught products, duty will increase in line with RPI.  These changes will take effect from 1 February 2025. 

The soft drinks levy is also set to increase each year for the five years from 1 April 2025 to reflect both the 27% CPI increase between 2018 and 2024 and any CPI increases from 1 April 2025. 

Investment

A number of tax changes were announced which, whilst not specific to the sector, may well have an impact on investment. 

In brief, the changes to capital gains tax (including business asset disposal relief (“BADR”) and investors’ relief), carried interest, inheritance tax and taxation of non-domiciled individuals are: 

1. the main rates of capital gains tax are increasing from 10% (basic rate) and 20% (higher and additional rate) to 18% and 24% respectively with effect from 30 October 2024;
2. the BADR and investors’ relief rates will increase to 14% for the tax year 6 April 2025 to 5 April 2026 and then to 18% for the tax year 6 April 2026 to 5 April 2027;
3. the rate of capital gains tax applicable to carried interest will increase from 18% (basic rate) and 28% (higher and additional rate) to a unified rate of 32% for the tax year 6 April 2025 to 5 April 2026. After this date, all carried interest profit will be within income tax and NICs, albeit at 72.5% of usual rates, giving an effective income tax rate of 32.625% for additional rate taxpayers and NICs of 1.45%, resulting in an aggregate income tax/NICs rate of 34.075%;
4. business property relief from inheritance tax is being drastically curtailed, with only the first £1million of value being fully relieved and any further value being subject to inheritance tax at 20%; furthermore, the £1million allowance will not cover unlisted shares (including AIM shares); and
5. the taxation of non-UK domiciled individuals is being overhauled, with the remittance basis of taxation being replaced by a temporary residence regime and inheritance tax moving to a residence basis. 

The extent to which taxes and reliefs which bite at exit rather than entry affect investment decisions is a contentious question, but none of these changes are likely to positively encourage investment in the sector or elsewhere, and the inheritance tax reforms will make it more difficult for some owner-managers to pass their business onto their descendants. 

Please see separate Law Now articles by the CMS tax team for further details which can be found here: 

https://cms-lawnow.com/en/ealerts/2024/10/autumn-budget-2024-key-tax-announcements

https://cms-lawnow.com/en/ealerts/2024/10/autumn-budget-2024-capital-gains-tax-rates-badr-and-investors-relief

https://cms-lawnow.com/en/ealerts/2024/10/autumn-budget-2024-carried-interest-reform

https://cms-lawnow.com/en/ealerts/2024/10/autumn-budget-2024-key-changes-for-non-doms-and-new-arrivals

https://cms-lawnow.com/en/ealerts/2024/10/autumn-budget-2024-reforms-to-uk-inheritance-tax