March 1, 2024

Will 2024 be the year the UK Government answers the hospitality industry’s calls for root and branch reform of business rates?

Posted in Property Disputes
Hospitality business rates

Whilst the announcements about the temporary business rates support package made by the Chancellor in the Autumn 2023 were welcomed by the industry, calls remain for an urgent reform of the business rates system to support struggling hospitality businesses.

Business rates are an annual tax calculated by the ‘rateable value’ of a commercial property (which is decided by the Valuation Office Agency) being multiplied by the tax rate (known as the multiplier which is set by the Government) before any business rates relief are applied.

The need for business rates reform has also been acknowledged by the current Government as they have been reviewing business rates for a while, with the stated intention to simplify and modernise the system.

The Autumn Statement 2023

In November 2023, the Chancellor announced a business rates support package, to take effect from 1 April 2024, which included:

  • extending until 31 March 2025, the existing 75% business rates relief on eligible properties used for retail, hospitality, and leisure subject to a limit of £110,000 per business.
  • freezing the small business rates multiplier, which applies to properties where the rateable value is below £51,000. Without the freeze, the multiplier would have increased by the CPI measure of inflation.

The standard business rates multiplier which applies to properties with a rateable value of £51,000 or more was not frozen. That standard business rates multiplier is due to rise by 6.7% from April 2024 (in line with CPI inflation).

How has it been received by the industry?

Freezing the small business rates multiplier (which applies to properties with a rateable value of below £51,000) has limited impact on the hospitality sector where a significant proportion of the sector operate from larger premises and are subject to the standard business rates multiplier. Kate Nicholls of UKHospitality, the trade body for the industry, stated “The standard multiplier affects businesses representing two-thirds of hospitality’s trade and it’s hugely disappointing that the higher September figure was used, which will see rates rise by £150 million”.

One of UKHospitality’s key asks of the Chancellor ahead of the Spring Budget is for a 3% cap on the standard business rates multiplier that is due to rise by 6.7% from April 2024.

Despite the temporary measures which were announced by the Chancellor, the hospitality industry is urging the Government to make permanent changes to reform business rates as the present business rates system has been criticised for being outdated and unfair.

Emma McClarkin, Chief Executive of the British Beer & Pub Association states “urgent root and branch reform is still needed to make business rates fit for the 21st century; the Government doesn’t recognise the completely archaic nature of the current system”.

The most widely cited criticism is that there is inequality between the tax treatment of physical bricks and mortar businesses which are subject to business rates and online businesses which can operate without high value premises.

Where are we now?

The Hospitality sector was one of the hardest hit during the pandemic. The industry is recovering from the pandemic but it continues to face major challenges with pandemic related debts, costs of living crisis, staff shortages and escalating operational costs.

Without Government action the hospitality industry will continue to struggle to survive.

UKHospitality have set out a 3-point plan to help the hospitality sector achieve its potential, They are calling for Apprenticeship Levy reform and a lower rate of VAT for hospitality, leisure, and tourism. They are also asking for an urgent root and branch reform of the business rates system.

The Spring Budget on 6 March 2024 is an opportunity for the Chancellor to announce measures to support the industry and promote growth and investment. Whilst the Chancellor has stated he wants to lighten the tax burden, the predictions are that the Chancellor will not be prioritising tax cuts to assist businesses but will instead focus on personal tax cuts to please voters in the run up to the General Election.

It seems that the calls will continue for the Government to provide the hospitality sector with the support it needs to survive, grow and thrive with one important measure being the fundamental systematic reform of the business rates system.

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