Jeremy Hunt, the UK's chancellor, has unveiled his first budget, which included a range of measures that will directly impact the hotel sector.
The chancellor said that from April, business with profits of over £250,000 will see their corporation tax rise from 19% to 25%. He also introduced a “full expensing” expensing policy that will allow companies to claim off taxable profits, the full cost of plant and machinery investments.
Stuart Houston, finance director at RBH Hospitality Management says that while the amendments to capital allowances is a positive, the increase in corporation tax is a disappointment.
“The fact that you can write off 100% investment in the year one is obviously attractive but it’s restricted to IT equipment, plant and machinery. It’s a 6% increase in your tax burden and while there are specific categories of investment that allow you to offset that, your tax burden will go up. Also, the relief won’t relief won’t apply to a lot of owners.
He adds: “I think the higher taxation could make the UK as a whole, less attractive to investment capital compared to other economies. We’ll still be midrange on corporate taxation, we won’t be the highest by any means but we certainly won’t be near the bottom compared to investment opportunities in other countries.”
Lionel Benjamin, co-founder of AGO Hotels expressed disappointment that there wasn't a reversal of the corporation tax rise, noting that the rise could spell doom for some.
"With double-digit inflation and rising bills, this means further costs for businesses which we are trying not to pass onto the consumer. Now it is becoming more difficult not to do so and in the coming months, we may see more businesses close their doors."
However, Ronak Shah, capital allowances director at Cooper Parry, has a more positive outlook. “The tax relief will hopefully encourage investment into existing hotel stock. It provides a carrot whereas if you spend more capex on hotels, you can get more tax relief back. It will act as an incentive for investors and operators to spend more upgrading and refreshing their hotels.”
"This budget will encourage vendors who are sitting tight on their assets to invest in the existing stock because there's more tax relief available. By investing in their stock, they'll pay less corporation tax in the first year or two and they'll potentially be able to repurpose their stock to a position where in 12 to 18 months, they can sell their assets for a higher price than what they're currently selling for.”
Hunt also confirmed the creation of 12 investment zones across England in West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside and in Liverpool as well as in Scotland, Wales and Northern Ireland. He noted that each investment zone will have access to £80 million of support for a range of interventions including skills, infrastructure, tax reliefs and business rates retention.
Shah notes this could have an indirect positive effect on the hospitality industry.
“The investment zones will hopefully boost the economy, encourage employment and encourage people to live in these areas, which will then potentially have a knock-on effect on amenities such as hotels, aparthotels and other sub asset classes in the hospitality sector.”
Commenting on Hunt's announcements in relation to investment zones, regeneration projects in key town centres, business rate retention and giving local authorities more control on spending, Benjamin stated: "The devil will be in the detail and we believe specific incentives are needed around the regeneration of city centre buildings, particularly those which are closed and could be converted into hotels."
The chancellor also announced extended support for households on energy costs, confirming that the Energy Price Guarantee will remain at £2,500 for the next three months..
Houston says “Anything that can help with the cost of living crisis and disposable income of people in the UK will hopefully help the hospitality industry as in many cases, people will spend that discretionary income on hotel stays and in hospitality.”
Hunt also laid out plans to tackle the UK’s labour shortage, unveiling measures around supporting disabled people, those with long-term health conditions, over 50s and those on Universal Credit. This announcement is good news for the hospitality industry which continues to face staffing an skills shortage, with experts noting that getting more people into the workforce will help to alleviate staffing pressures.
Houston noted that latest figures from the Office of National Statistics shows that the hospitality industry still has 142,000 vacancies, adding that it’s the industry with the most vacancies.
“One of the biggest pressures over the last two years the years has been the shortage of labour supply. Any steps to increase the labour supply is a positive and Hunt’s announcement here was probably the most encouraging aspect of the budget.”
Looking forward, Benjamin called on the government to do more to ensure the survival of the hospitality sector.
"At AGO Hotels, we are calling for a reduction of output VAT to 10%, widening the scope of capital allowances offered to encourage development and ESG investments, and a comprehensive review and reduction of the widely outdated system of business rates."