Government expected to extend tax breaks for hospitality SMEs

Chancellor Jeremy Hunt is reportedly planning to announce an extension to the Retail, Hospitality, and Leisure (RHL) relief scheme for cheaper hospitality business rates in his upcoming Autumn Statement on Wednesday.

As first reported by Bloomberg, the finance minister is considering prolonging the scheme, which ensures a marked reduction in business rate bills for qualifying firms. The programme was previously extended as part of the Spring Budget back in March.

An end to RHL relief could cost the hospitality and retail sectors an estimated £630 million. Since April 1 2023, as part of the government’s inflation support pledge, all eligible firms have received 75% off their business rates bills, up to £110,000 per claimant. 

Sector woes “far from over”

Customer-facing retail and hospitality firms have been treading water throughout the year. As a result of the ongoing cost of living crisis, tightened consumer wallets have decimated profits and weakened SME cash reserves.

Government figures, published on Friday, painted an even bleaker picture than expected. The volume of products sold in October 2023 fell by 0.3% to the lowest level since peak COVID lockdown in February 2021.

Business rates are one of the biggest expenses that face brick-and-mortar businesses. Any firm that occupies non-domestic or commercial properties must pay the charge, which makes the owner responsible for footing a bill that can total tens of thousands each year.

Earlier this week, five of the largest hospitality groups in the UK comprising the British Retail Consortium, UK Hospitality, Association of Convenience Stores, British Independent Retail Association and UK Active, signed an open letter requesting RHL be extended. 

Highlighting the cocktail of challenges currently plaguing the sector, the letter read: “Energy prices remain at historically high levels, we have seen soaring wage costs (in our labour-intensive sectors) and our input costs remain high.

“For many businesses in hospitality, leisure and retail, the crisis is far from over.”

Calls for next year’s business rate increase to be frozen

According to a report from BPI, which examined business rate rises across ten councils in 2022, SMEs saw an average increase of 16.62% in business rate payments last year. That represents an astonishing financial strain on SME cash flow reserves.

Bloomberg has also reported that the government is considering extending the Supporting Small Business scheme, which came into effect in April. The scheme caps any increase in the business rates bills of small companies to £600 per year, according to an anonymous source. 

This would help to alleviate concerns among SMEs ahead of an incoming rate rise in April 2024. Business rates are set to increase again next spring under the government’s “multiplier”, which is linked to inflation. 

Many retail and hospitality leaders are calling for the move to be delayed, in an attempt to stop small businesses from going bankrupt as a result of financial pressure.

In a press release, Kate Nicholls OBE, Chief Executive of UKHospitality said: “Freezing rates and extending relief will be a lifeline for a sector that simply cannot absorb any more costs.

“Inaction will leave hospitality businesses with no choice but to put up prices, open less or, in the worst-case scenario, shut their doors for good.”