2017 Autumn Budget announcements likely to impact investment in the Leisure & Hospitality sector
The Leisure & Hospitality sector is still contending with the major changes expected from Brexit and one of the many concerns would be blocks to international investment coming into the UK, which in turn would probably have adverse effects on the sector. The full impact of the UK leaving the EU will not be known for some time yet. However, those within the industry are hoping the UK government will continue to support them rather than remove the incentives that encourage investment.
For instance, it is predicted that in the 2017 Autumn Budget, Chancellor Philip Hammond will be announcing a crackdown on investment schemes such as the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT). The Treasury recently published a consultation paper entitled ‘Financing Growth in Innovative Firms’ and with regards to EIS, the paper suggests that several companies that received EIS funding may have also received a form of credit that does not require a tax break. So in order to curtail this, it is expected that the rules around access to EIS will be tightened, withdrawal of some tax breaks or even amendments to qualifying periods, will be announced in the upcoming budget.
Meanwhile, investors looking to benefit from the generous tax advantages available through VCT’s may have cause for concern as their window of opportunity may be closing. The Chancellor is expected to announce some major changes to the scheme as well. VCT’s offer a 30% income tax relief and are also not liable for capital gains or dividend tax which makes it attractive to investors as a means of investing in small businesses. HMRC estimates that the income tax and capital gains tax relief available through VCT’s will cost the government £125 million in 2016/17. The Chancellor is considering changes to the income tax relief rules as a means of raising money to help plug the huge £20 billion budget hole, which is speculated to be the result of lower than expected productivity growth.
The speculation is that both schemes have recently been put up for review because the Treasury has been alerted to claims that the schemes are being exploited as a means of tax avoidance, rather than what they were intended for which was to allow the opportunity for investors to provide funding for businesses which would not be able to find the funding they need anywhere else.
The new restrictions to the schemes are likely to exclude ‘asset backed businesses’ that hold relatively secure assets such as freehold or leasehold buildings/property such as hotels, pubs, restaurants and wedding venues. These are the businesses considered to be high-risk, even though they might be doing well, and the most likely to benefit from investors who would take advantage of the these schemes.
These changes will clearly impact the Leisure & Hospitality sector significantly so it is therefore very important for the Government to consider these issues and work with those within the sector to come up with some solutions. Along with investors, everyone is waiting to hear if there will be any announcements within the budget on how the government intends to support and perhaps boost the growth of small businesses specifically in the Leisure & Hospitality sector and generally across the UK.