As part of the Summer Budget the government announced a new National Living Wage to replace the current National Minimum Wage. The National Living Wage will lift the wages of the lowest paid employees, so that by April 2020 all over 25’s will be earning at least £9 per hour, compared to the current National Minimum Wage for over 21’s of £6.50. This increase will be phased in from April 2016 and will have a significant impact on the hospitality and tourism industry over the next 5 years.
The increase in wages costs will be offset in part by the announcement that the Employment Allowance for employers NI contributions will increase from £2,000 to £3,000 with effect from April 2016. In addition, for those businesses operating as limited companies, corporation tax bills will be reduced as the rate of corporation tax falls from 20% to 18% by 2020. Further assistance could have been given to the industry by a reduction in VAT for hospitality and tourism businesses, however, the summer budget fell silent in this regard.
The government has abolished tax relief on purchased goodwill with immediate effect. Goodwill is a common component when acquiring a business, particularly in the hospitality sector. Previously, this gave a tax deduction to the buyer and could positively impact on the Stamp Duty position for the vendor. In future we would expect to see goodwill values being suppressed with equipment valuations being increased. We may also see an increase in the number of share sales as opposed to trade and asset purchases within the sector. A share sale can provide a Stamp Duty benefit to the vendor which is important for most hospitality businesses where the value of property is significant.
Lastly, the government announced they are committed to maintaining the Annual Investment Allowance at £200,000 for the rest of this Parliament. The Annual Investment Allowance provides full tax relief for capital expenditure in the year of expenditure. It was due to reduce to £25,000 from January 2016, but with these changes, hospitality businesses can continue investing in their properties and receiving tax relief as early as possible.
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