The Autumn Budget: Hospitality businesses’ reaction and what to do next

The Autumn Budget: Hospitality businesses’ reaction and what to do next

Chancellor John Healey recently delivered the Autumn budget which was described by hospitality operators as “incredibly frustrating”.  Although the Chancellor announced an increase to the threshold for small business rate relief, which is set to rise from £12,000 to £18,000 for hospitality, retail and leisure businesses, he also announced a 3.9% increase in the minimum wage,

Despite a campaign by the British Institute of Innkeeping (BII) to lower the VAT rate for hospitality to 10%, the Chancellor made no mention of doing so.  Tommy Banks, chef-patron of the Tommy Banks Group, said: “We’ve told the government time and again what hospitality needs and why the industry cannot carry on as it is. It feels like those warnings have fallen on deaf ears… Most businesses I speak to don’t have a turnover problem. They’re as busy as they’ve ever been. But the weight of the tax burden, coupled with rising costs, means even busy, vibrant establishments are struggling to make their business models sustainable.”

For hospitality businesses, the question is what to do next.  Reviewing cash flow, planning for tax payments and tackling financial difficulties early should be key priorities.

How can hospitality businesses stay on top of VAT?

Check that the correct VAT treatment is applied. Eating-in, hot takeaway and cold takeaway sales can be treated differently, and not all cold takeaway items qualify for zero-rating.  If unsure, ask your accountant to review certain items or review HMRC’s catering and takeaway guidance.

Keep track of the overall VAT position and, where possible, set funds aside.  If there is any doubt that the Company can pay a VAT liability when it falls due, you should contact HMRC to discuss the options available.  If the problem is persistent, rather than isolated instances of the Company being unable to meet its liabilities immediately when they are due, contact your accountant or other trusted adviser.

What practical steps could ease financial pressure?

Take care to implement simple administrative procedures, before a short-term issue becomes a serious financial problem:

• Pay attention to weekly cash flow – record sales, purchases and other costs such as wages, rent, utilities and VAT. Compare forecasts with actual outcomes and consider adjustments to trading strategies.
• Carefully consider profit margins – review the contribution from all sources of income, after direct costs. Promote those which have the highest overall margin and check that discounts, offers or delivery platform fees do not undermine margins to the point they are unworkable.
• Review costs – Some costs are unavoidable, and there may be little which can be done to address them. However, look at costs which may be mitigated such as food waste, stock levels and ensuring that staffing is accurately matched to demand.

What should you do if bills cannot be paid as they fall due?

A company that cannot pay its debts as they fall due is insolvent within the statutory definition and taking advice is very important.  Insolvency does not automatically mean that trading must stop, but whether continuing is appropriate requires careful assessment.  Keep clear records of all decisions made and seek urgent advice about any statutory demand, winding-up petition or enforcement notice.

Depending on the viability of the business, options may include:

• negotiating agreed repayment arrangements,
• Company Voluntary Arrangement or
• Administration.

Where turnaround is not achievable, a Creditors’ Voluntary Liquidation may be appropriate. An Insolvency Practitioner can assess the options available and advise accordingly.

When should an accountant consider referring to an Insolvency Practitioner?

A confidential, early-stage conversation with an Insolvency Practitioner may be helpful where you identify your clients experiencing any of the following:

• Recurring cash shortfalls, even during busy periods;
• Increasing sales which have no corresponding impact on profits generated;
• Creditor pressure from HMRC, suppliers or others;
• Difficulty meeting costs where there is no scope to reduce them;
• Increasing arrears to HMRC, landlords etc.

How RPG can support

Early engagement makes a big difference. At RPG Business Recovery , we work constructively with directors and their other advisers to understand the business’s financial position and explore all available options. The Business Recovery team, led by Laura Walshe, is happy to have a no-obligation discussion with you or your clients.

We welcome referrals at the earliest opportunity and aim to work collaboratively with you, with clear communication at each stage. If your hospitality business, or a client’s business, is facing financial difficulties, please call our Manchester office on 0161 608 0000 for a no-obligation discussion.

Alternatively, you can email us at businessrecovery@rpg.co.uk.

This article provides general guidance only, not tax, legal or insolvency advice tailored to your circumstances. Rules and procedures may differ across UK jurisdictions.