The Chancellor of the Exchequer, Rahel Reeves, delivered Labour’s budget today (30th October 2024) to outline their plans to recover a £22bn budget deficit.
Lots of things were covered off in the course of an hour, but here are the key points that will affect the hospitality industry…again.
Here are the increases to the National Living/Minimum Wage as the Labour Government pushes to bring all adults to the National Living Wage.
Banding | Current Rate | As of April 2025 | % Increase |
21+ | £11.44 | £12.21 | 6.73% |
18 – 20 | £8.60 | £10.00 | 16.28% |
Under 18 | £6.40 | £7.55 | 17.97% |
1st Year Apprentice | £6.40 | £7.55 | 17.97% |
Note, the National Living Wage is not the same as the Real Living Wage as published by the Living Wage Foundation, and is calculated based on the cost of living. The rates published by the Living Wage Foundation for the upcoming year are:
· £12.60 across the UK, and
· £13.85 in London
Personal Allowance
The Personal Allowance will remain the same at £12,570- it has been at this rate since the 2021-22 tax year, and will likely remain in place until 2028-29. This is considered by many (myself included) to be a form of stealth tax (a form of tax that goes largely unnoticed by the party paying it)- as the National Living/Minimum Wage increases over the years, it pushes more people above the personal allowance and into the 20% tax bracket. Most companies will increase their salaries in line with the National Living/Minimum Wage which pushes more people into the 40% tax bracket, and as the criteria for benefits don’t increase at the same rate as the National Living/Minimum Wage, it effectively removes cash from more pockets.
Employer’s National Insurance Contributions (NICs)
As expected, a huge blow to all small employers came in the form of a 1.2 percentage point rise in Employer’s National Insurance, taking the percentage that employers pay from 13.8% to 15%. The Secondary Threshold (this is the amount at which Employers start to pay NICs) was also reduced from £9,100 to £5,000, which means an additional £615 per year, per employee in NICs on earnings between £5,001-£9,100. To fudge the results a little bit more, the Employment Allowance is increasing from £5,000 to £10,500. Companies with 4 or fewer full-time employees on the National Living/Minimum Wage will benefit from the increase in the Employment Allowance- they’ll pay close to £0 each year in Employer’s NICs. But for the rest of us, it’s a kick in the proverbials.
As a side note, we’re asked frequently about the salary-dividend split. I’ve chosen not to include that in here as I take a different stance on the salary-dividend argument. It’s often difficult to forecast profit for hospitality businesses, and as soon as you have one shit week, it can wipe out the profit for the entire month which in turn wipes out any dividends. Lower salary and higher dividends has an impact on multiple taxes- Income tax, Employee and Employer NI, Employee and Employer pension contributions, and Corporation Tax (which is calculated on a sliding scale). Since this differs for each business, it’s something that we’d need to calculate based on each client’s personal circumstances.
We’ve put together a rough table to show you what the impact is on employing people across various age ranges based on a 40 hour work week:
As you can see, the average increase on cost when the new National Living/Minimum Wage is combined with the changing rates for National Insurance is 17.78% across the board.
Under the current rates and thresholds and based on the example above, the employer would pay £3,856.62 in Employer’s National Insurance (£8,856.62 less the £5,000 Employment Allowance). Under the new rates and thresholds, the same employer will pay £5,940.24- an increase of £2,083.62 or 54.03%. Those who employ a higher percentage of 16-20 year olds will still have a lower Employer’s NI bill than those who employ a higher percentage of people aged 21+, however, they’ll also see the biggest increase in Employer’s National Insurance.
The increase in Employer’s NICs across the age bandings is slightly different. Excluding the Employment Allowance (which isn’t available to everyone i.e. connected entities), the increase in NICs across age bandings looks like this (please note that these calculations are based on a person of that age banding working 40 hours per week at the relevant National Living/Minimum Wage, and comparing the current rates with the new rates):
Age bracket | % increase in NMW | % increase in Employer NICs |
21+ | 6.73% | 50.87% |
18 to 20 | 16.28% | 95.42% |
Under 18 | 17.97% | 176.23% |
1st year Apprentice | 17.97% | 176.23% |
No, that’s not a typo. Your NIC contributions for a 17 year working a 40 hour week are going to increase by 176.23%. Those who employ a higher percentage of 16-20 year olds will still have a lower Employer’s NI bill than those who employ a higher percentage of people aged 21+, however, they’ll also see the biggest increase in Employer’s National Insurance.
You can download our spreadsheet to calculate the likely cost increases by clicking on the button below.
Business Rates
The current 75% business rates relief hospitality, retail, and leisure sectors will be reduced to 40% starting April 2025. You can calculate your business rates by clicking on this link here. The relief will continue to be capped at £110,000 per business. This reduction is anticipated to increase the tax burden for many establishments, potentially raising average business rates bills significantly for venues, pubs, and restaurants, which often already operate on narrow margins. This, combined with the changes to Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR) could see the closure and/or sale of a great number of venues that have relied heavily on the rates discount over the past few years.
Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR)
This is an interesting one- it isn’t something that hospitality business owners usually put much focus on, but for those that are aiming to expand, the upcoming changes could lead to expansion plans being brought forward. Here’s the fluff before we get to the good bit:
The CGT rate will rise from 10% to 18% for basic-rate taxpayers and from 20% to 24% for higher-rate taxpayers on gains from assets such as shares and business interests. These new rates are set for the 2024/25 tax year, while CGT rates for residential properties will remain at 18% and 24%.
The BADR lifetime limit will remain at £1m- this allows for gains below this level to be treated with a reduced CGT rate of 10%. The rate will increase to 14% from April 2025 and then to 18% in April 2026. BADR allows eligible business owners, including those selling hospitality venues, to pay a lower CGT rate on gains from business disposals, but the upcoming increases mean a smaller benefit over time.
These tax increases create a potential opportunity for hospitality businesses looking to expand through acquisitions:
· Negotiating Lower Prices: With the impending tax hikes, some owners may be motivated to sell at a lower price before April 2025 to benefit from the lower CGT rates, thereby avoiding higher tax liabilities later. Expanding businesses can leverage this urgency to negotiate better prices.
· Acquisition of Established Venues: Established hospitality venues that are profitable but wish to exit could present prime acquisition targets, especially if sellers are eager to complete deals before BADR and CGT rates increase. Acquiring established locations can reduce the risk and initial setup costs associated with new ventures, providing a strong customer base and existing operational frameworks.
· Tax Planning for Acquired Assets: By purchasing assets at a reduced price and holding them for long-term growth, the acquiring business could benefit from eventual asset appreciation. Proper structuring of the acquisitions could mitigate future tax impacts through allowances, such as claiming reliefs where available, or utilizing tax-efficient structures like groups or limited liability partnerships.
Although interest rates aren’t as favourable as they have been historically, they’re predicted to reduce during Q4 of 2024 and Q1 of 2025, which could make the sale and purchase of venues more appealing to buyers with enough cash for a deposit/ collateral.
Other bits
· Interest for late tax payments to increase by 1.5 percentage points to the base rate plus 4% from 6th April 2025
· Tackling rogue company Directors- The government will increase
collaboration between HMRC, Companies House, and the Insolvency Service to
tackle those using contrived corporate insolvencies and dissolutions, often referred
to as “phoenixism”, to evade tax.
· Draught duty is being cut by 1.7%. It’s naff all and about 1p off your average pint.
· Corporation Tax will remain capped at 25%
· There are no adjustments to VAT at the moment and nothing has been speculated
· The freeze on Fuel Duty and the 5p reduction will remain in place for the 2025/26 tax year.
· Maternity and Paternity Leave changes:
o For paternity leave, new regulations will allow eligible employees to split their two-week leave into two separate one-week blocks, instead of being required to take it as a continuous period. Fathers and partners can now take this leave any time within the first 52 weeks after the child’s birth, an expansion from the previous limit of 56 days. Additionally, the notice period for taking paternity leave has been shortened to 28 days.
o For maternity leave, enhanced protections now cover redundancy situations, extending protections not only during pregnancy but also for a period after returning to work. These updates align with new rights for flexible working, allowing employees to make flexible working requests from their first day on the job, with employers required to respond within two months.
· Carers Allowance changes:
o allows carers to work up to 16 hours per week at the National Living Wage (NLW) without losing their allowance, increasing the income threshold to approximately £151 per week after tax and other deductions.
Coming up
Employment Rights Bill and Zero Hours Contracts. This aims to limit contracts that enforce one-sided flexibility in favour of employers. The bill would require that employees on zero-hours contracts be offered a contract with predictable hours after three months if they regularly work set hours. This could have a major impact on the hospitality industry who typically use zero hours contracts to cope with fluctuations in demand. Offering more fixed contracts or guaranteed hours will lead to higher operating costs, greater planning requirements, and the need to reduce the overall workforce to offset the requirements. This change is likely to come into force in 2026.
With all of the shit being thrown at us, don’t go down the rabbit hole of “booked it, packed it, fucked off”. The typical panic mode for hospitality is to see where we can cut staff and stock. These changes are going to require us to be more creative, to look at ways to do more, with less.
To read the full 170 page budget (if you can be arsed). Please click here.
We’ve still got time to plan for the changes, and to see what we’re able to implement. Rather thank fucking off and becoming the next KP of the month at Spoons (nothing wrong with that, of course), click here, book in, and let’s fix it before it becomes a problem.
Comments