call us
Glasgow
+44 (0)141 221 2984
Edinburgh
+44 (0)131 225 6366
Stirling
+44 (0)1786 451745
Dumbarton
+44 (0)1389 765238
Hamilton
+44 (0)1698 459444
Glasgow
+44 (0)141 221 2984

Edinburgh
+44 (0)131 225 6366

Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

French Duncan

Blog

The impact of Brexit on the hospitality industry

Ever since the vote to leave the European Union in the 2016 referendum, the question of what this means for the UK hospitality industry has been hotly debated, with some pundits predicting a crisis on the horizon. However, it may not necessarily all be bad news. Since my last blog on this subject in November of last year, there have been various reports published and of course we have had the Spring Budget.

One immediate effect of the vote was on inflation. After years of minimal price rises, the UK was suddenly looking at forecasts of 3% or more. In particular, rising food prices seemed like a threat to the bottom lines of restaurants and other catering businesses. However, recent bulletins from the Office for National Statistics indicate a 12 month rate of 2.5%, less than some have feared.

However, as far as the industry is concerned, the most significant impact of Brexit has to be on staff recruitment and retention. According to a recent British Hospitality Association report, approximately 3 million people work in the sector in the UK, and as many as a quarter of these are EU nationals. In London, this figure rises to 38%. Overall, 43% of low level, non-managerial jobs in hotels and restaurants are filled by overseas workers. As a result of proposed tougher rules on the migration of EU workers post-Brexit, the same report goes on to predict a scenario in which the industry will experience a shortfall of 60,000 workers per annum over the next few years.

If this prediction turns out to be true, it will undoubtedly pose a problem for the industry. While increased productivity and automation can mitigate against staff shortages, there is no escaping the fact that the sector is labour intensive, and a low ratio of staff to customers will almost inevitably result in a decline in the quality of service.

However, there may be some positive aspects. Because it equates to more spending power for visitors from abroad, the weak pound which has been the new normal since the 2016 vote has served the sector well. In addition, there is also good news for young people thinking about a career in the industry. According to CV Library, sector pay has seen rises of over 10% in recent years, the highest increase in any part of the private sector. Needless to say, these pay rises are a reflection of the recruitment gap post-Brexit and the difficulty hospitality businesses have in filling vacancies. But they also create an opportunity, a chance to sell the potential rewards of a career in the sector and thus attract more home-grown talent. Allied to improved training schemes, this might well help to make companies less reliant on a workforce from the EU in the future.

Happy New Year? Looking ahead to taxes in 2018/19

5 April has passed with many stockbrokers and IFA’s breathing a sigh of relief as last minute pension contributions, ISA investments and share sales to make use of capital gains tax annual exemptions were processed by the 5 April end of tax year deadline.

What changes does the new 2018/19 tax year bring for us?

Many tax reliefs and allowances increase, notably, the income tax personal allowance from £11,500 up to £11,850 and the capital gains tax annual exemption up from £11,300 to £11,700.

For Scottish tax payers, there is also some additional tax bands, compared to English taxpayers who remain with rates of 20%, 40% and 45%. In Scotland, there is a new 19% band, but only in respect of £2,000 of income while a new 21% band is introduced and the higher rate and additional rate bands both increase by 1% to 41% and 46%. Many on lower incomes will notice modest tax reductions while those on slightly higher incomes and beyond will suffer more income tax.

The big downsides of this tinkering are additional complexity for Scottish tax payers and the costs to HMRC of implementing changes which could easily be tens of millions. It will be interesting to see, in a year or two, when HMRC publish the figures, the amount of additional income tax generated versus the costs of doing so.

Another complication is that the Scottish rates of income tax apply to earnings, pensions and rental income and not to dividends and interest. So while Doctors, Judges and other high earners are caught, those with their own companies can actually reduce their earnings and instead receive dividends from their companies. They would either be completely unaffected or perhaps even be better off as a result of behavioural changes resulting from the higher Scottish rates of income tax. Again, another one where we may be able to glean any behavioural changes when the figures for the Scottish tax take are published.

A final one which, at first glance is a negative but is actually beneficial is that many employees will notice a drop in their take home pay in April. This is because the rate of employees’ pension contribution under auto enrolment is rising from 1% to 3%. The additional contribution is deductible for income tax but nevertheless, after tax net pay will reduce, all other things being equal. The benefit is that when employees retire, there will be more in their pension pot and more available to spend in retirement. Anyone who does not wish to participate in work place pensions can opt out but they have to approach their employer to do this. There may be a short term gain but, in the long run, probably not a good idea bearing in mind that the employer also contributes to these pension schemes for their staff.

Nothing stands still and those of us north of the border can look forward to increasing complexity in our tax system. Many people look back to the olden days when life seemed simpler. They certainly were in the taxation field when, at one stage, we had two rates of income tax: 25% and 40%. Golden years indeed.

Furnished Holiday Lets - Inheritance Tax

Inheritance Tax (IHT) is another factor which landlords of Furnished Holiday Let (FHL) properties should consider.

Whether or not a particular property can qualify for Business Property Relief (BPR) for IHT purposes remains a tricky area. If BPR applies, you can get relief of either 50% or 100% on the asset, which can be passed on during your lifetime, or as part of your will.

As demonstrated in the case of HMRC v Nicolette Vivian Pawson 2013 (the Pawson case), the level of services provided highly impacts on whether a FHL landlord is entitled to claim BPR. The extent of services provided must differentiate from those that would be provided by a standard landlord. An increase in the additional services which can be provided in turn increases the chances of a successful BPR claim.

Additional facilities and services might include:

  • operation of a website
  • personal welcome on arrival, to show customers around the property and ensure they know where everything is and how it works
  • facilities for accommodating pets
  • swimming pool and maintenance thereof
  • barbeque facility and fuel supplies
  • access to games and sporting activities
  • arrangements for the enjoyment of local tourist activities
  • provision of a welcome pack
  • provision of some meals

The key to these additional services is it is not essential for all customers to use these additional services, they simply must be offered, many of which could be at an additional charge.

The more recent case of Vigne v HMRC (2017) however has cast doubt on this judgement, arguing that it should not be assumed that a business is an investment business and that the proper starting point is to make no assumption one way or the other.

This decision means that business relief may now be available on activities which would have previously been challenged.

HMRC do provide a clearance service, in which they will advise whether or not your FHL business qualifies for BPR. This service is only worthwhile using if you are confident that the relief will potentially be due.

As things currently stand, a standard FHL business is unlikely to qualify for BPR and although the Vigne case has cast doubt on the Pawson decision, it should be noted that the Vigne case is currently a First-Tier Tribunal case which could be appealed by HMRC. It could however prove to be an unexpectedly significant case in terms of the availability of BPR for FHL’s and the level of services which are required to be provided.

If you are looking for advice relating to your FHL, please contact French Duncan Tax Senior Jen Kinnear either by email to j.kinnear@frenchduncan.co.uk or call 01786 451 745.

This blog is part of a series of eight - you can see all blogs here:

1. Furnished Holiday Lets - an introduction & your obligations

2. Furnished Holiday Lets - qualifying conditions & elections

3. Furnished Holiday Lets - Income Tax & Capital Gains Tax

4. Furnished Holiday Lets - Non Resident Landlords

5. Furnished Holiday Lets - VAT

6. Furnished Holiday Lets - Making Tax Digital (MTD)

7. Furnished Holiday Lets - Conclusion & Services

« Previous    1    2    3    4    5    6   7   8    9    10    11    12    13    Next »