Business rate rise will add millions to hospitality tax bill

The hospitality industry will see its tax bill rise by tens of millions if the Government pushes ahead with plans to increase business rates by 5% next month.

Despite a concerted campaign for a freeze in rates, led by the retail sector, Chancellor Alistair Darling has refused to back down over the increase, based on last September's 5% inflation rate.

Business rates paid by hotels are based on around 4-5% of turnover, which currently works out between £480m and £600m (official overall turnover is £12b), and adding 5% in April will means an extra £24m-£30m for the sector.

“This is relatively small, but, in current circumstances, not at all welcome,” said a British Hospitality Association (BHA) spokesman.

Restaurants also face a “significant” rise in costs, the BHA warned, although putting an exact figure on it is difficult as their business rates are based on rateable value, not turnover, and there no figures for the sum total of all restaurant rateable values.  

The chancellor has also reiterated his commitment to a 2010 revaluation of business rates, based on property values in 2008.

This would be even worse news for hotels because it will be based on turnover averaged over three years to April 2008 - boom times for hotels - against the previous three years to 2003, during which time hotels were hit by the foot and mouth scare, the September 11 terror attacks and the Sars outbreak.

The BHA spokesman said: “It's hard to say what the increase in rateable values might be, but, say, if it's up by 25%, that would add £120m-£150m a year to rates payable.”

However, he added that transitional relief - definite in England, probable in Scotland, doubtful in Wales – will soften the year-on-year blow for those with big increases.

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By Daniel Thomas

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