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More help needed – SME expert Andrew Rowe , of Azets ’ Wynyard office , says hospitality businesses are still suffering from the effects of the pandemic .
North-East hospitality sector remains fragile despite budget support
The government ’ s scaling back of its Covid support measures has come too soon for businesses with little or no cash reserves , a leading SME expert is warning .
As one of the hardest hit sectors by Brexit and the pandemic , hospitality businesses in the North-East are struggling with unsustainable debts , losses and staffing problems , resulting in many permanent closures , and with more predicted .
Chancellor Rishi Sunak , in his first post- Brexit budget , announced a new one-year 50 per cent business rates discount for the retail , hospitality , and leisure sectors . However , after the autumn 2021 budget , the government has kept plans to reintroduce the full VAT rate of 20 per cent from April 2022 for hospitality businesses following a temporary cut , which increased from five per cent to 12.5 per cent last month . The 7.5 per cent rise in VAT for the hospitality industry is slowing down the Covid recovery for many businesses .
Mr Sunak also announced a significant reform of alcohol duty , with the number of main duty rates cut from 15 to six and products taxed in proportion to their alcohol content .
Andrew Rowe , office managing partner at Azets in Wynyard , welcomed the business rate announcements but warns more needs to be done to ensure SMEs in the sector continue to recover .
“ The changes announced in the budget are good news for hospitality and will go some way to securing the short-term future for SMEs in the sector ,” he said . “ However , the sector remains fragile and more needs to be done to help businesses in the region in the long term .
“ By halving business rates and reforming an outdated alcohol duty , the government has shown innovation and creativity in support of hospitality businesses . At the same time , the increase in the national living wage and minimum wage means a pay rise for millions of low-paid workers , with wages already accounting for up to half of all operating costs in the hospitality sector .
“ While new VAT measures announced in the autumn budget will ease some of the burden , hospitality SMEs should brace for the reintroduction of the full 20 per cent rate in April 2022 .
“ Events are now being planned well into 2022 and beyond , and if the reduced rate of five per cent had applied for a longer period of time , businesses would have improved their financial position and had a better chance of survival .
“ Increasing the VAT rate will reduce the income received by many and this could lead to unnecessary closures of businesses that could have been in better financial health six months from now .
“ Many of our clients in the hospitality sector are describing the current climate as the toughest they ’ ve ever experienced in business . Cash flow pressures due to the well documented issues around higher inflation , staff shortages , increasing energy prices , supply chain challenges and the need to repay Covid-incurred debt are making it very difficult right now .”
“ It is vitally important that businesses are aware and prepared for the reintroduction of the full VAT rate of 20 per cent on April 1 2022 and seek professional advice if needed . There are plenty of proactive things you can do now to build resilience into your business for the post-Covid economy – don ’ t leave it too late .”
Azets works with many companies in the region in the hospitality sector . For further information about how Azets can help your business , contact Andrew Rowe at andrew . rowe @ azets . co . uk azets . co . uk
The voice of business in the Tees region | 109