Questions arise not from a negative judgement but from our loving curiosity: from a desire to truly understand someone or something. So what are the factors that might affect our customers in The Budget and what stimulus might the budget have?
Approximately 70% of our workload at JCA is in the hospitality sector. This has been affected by the economic fall out of the covid pandemic but also from the negative impacts of Brexit and the uncertainty and red tape that this has now provided both before and after our leaving the EU. So how has the Chancellor sought to shape economic recovery for this major sector of our workload? What other sectors (we work also in health, education, workplace/ office & residential sectors) of our workload will be affected either positively or negatively by the Budget?
The prolongation of the 5% VAT reduced rate for hospitality was seen as crucial to our clients. Speaking with the heads and advisors of a few leading brands prior to yesterdays announcements, this was always quoted as a longer term requirement and we are glad to see this ‘support’ being maintained for the longer term albeit at the current 5% rate to September and then a new interim rate of 12.5% until the next financial year. In terms of the hotel sector, this reduced rate would be advantageous to maintain for the longer term thereafter in terms of international competition but this will be subject to government review of how well this reduced rate is working as we start to recover from the economic regression of recent times.
On business rates, the moratorium on rates until June and then the 75% discounted reductions thereafter will provide some breathing room for companies as they seek to reopen their core business activities. This was always stated as a requirement hand in hand with the VAT reduction and the Chancellor appears to have sought to satisfy industry demands. How will this affect our customers? The £2m cap on business rates will impact some of the larger businesses but I am sure most are looking forward with a level of optimism.
What was not addressed as part of the budget but of equal importance is the deferment of rents and how this stored up debt from the last year can be equitably resolved and repaid or offset. This is something for the government to partake in if they want to see an equitable return to growth for all within the sector and beyond.
Other measures announced in the Budget include a business restart scheme, which allocates funding for small business grants of up to £18,000. it is important to get these grants out to operators asap to help ease the cost of reopening for which these grants, although welcome are unlikely to cover much of the costs incurred whilst still being shut.
The extension of the furlough scheme is an aid to our customers and ourselves as we seek to return to fit out work for hospitality clients. The retained flexibility provides some level of assurance for both employers and employees and has been extended to September with a return to the shared levels of payment seen last summer. As a company we have retained all our staff throughout the pandemic and each are now working for at least some part of each month. We expect with increased enquiries and feasibilities currently being compiled, that all members of staff will be back to full time employment by September when the scheme now ends. the flexibility in the furlough scheme will allow our customers to bring back staff as the demand increases with reopening. This is positive.
Other matters of note especially to the hospitality sector relate to the recruitment incentives within the budget which should be an incentive to upskilling employees, tackling unemployment and rebuilding the economy.
Of equal note to all our clients will be the allowances within the budget for tax relief on plant and machinery. For a two year period, those paying corporation tax will be able to claim 130% on main rate plant and machinery and an enhanced first year allowance of 50% in special rate plant and machinery.
In the context of a restaurant project, main rate plant & machinery includes assets such as fire alarm and fire protection systems, building management and control systems, security and CCTV systems, building maintenance equipment, sanitaryware, fixtures, fittings, loose furniture and equipment. This would equate on average to around 40-60% of any fit out or refurbishment project. This effectively provides write off of the costs over a two year period for these assets.
Special rate plant & machinery for which a 50% allowance will be provided for one year includes all the main services installations in a building including electrical power, lighting, hot and cold water installations, HVAC systems, lifts and escalators. These would typically equate to 30% of any restaurant fit out.
The increase in the rate of corporation tax is timed to coincide with the end of the relief on capital allowances and might prove an incentive, we are advised or have had it suggested, to make the most of these tax incentives while they are available and potentially create tax losses to carry forward into the future when the taxes will be higher. of course you only pay corporation tax on profits and these have been hard to find for a lot of our client concerns this year.
The confirmation within The Budget of the creation of eight new freeports until 2026 where business will benefit from increased rates of tax relief though capital allowances as well as stamp duty and business rates relief, might see a rush to regions such as Humberside, Liverpool, Solent, Plymouth & the other named freeports. There is also a 10% rate structures and buildings allowance for non residential structures and buildings meaning that the depreciation period would be 10 years compared to 33 years at the standard rate. We look forward to meetings in Liverpool and some of the others, which have already been identified as target locations by some of hospitality clients.
Some matters that we applaud the principle although would like to see further action is the RPI indexed increase in the standard rate of landfill tax, seeking to provide an incentive to minimise the amount of material going to landfill and looking at other waste options such as recycling and composting. However it was disappointing to see the level of ‘green’ taxes were not what might have been expected/ hoped for. The future years budgets will need to be utilised to help provide the financial stimulus towards the green economy and rapid carbon reduction with a trend toward carbon zero.
In summary, the budget has provided some opportunity to stabilise and look forward to how we can build back better together. This is not because its the right thing to do, but because there will be no recovery for the UK unless we secure an equal recovery. We need to all recover together in equal consideration. One of the best expressions I heard within the last week (and slightly out of context), ‘when the tide comes in , all the ships rise together.’
Let’s build better