Business rates will change in April after the first re-evaluation in seven years. For the hotel industry, this is likely to mean some major winners and losers. So, who is facing a hefty increase, and who is in line for a reduction?
Simply put, it all depends on where you are based.
While hotel owners in central London can expect rises of up to a double of their previous rate bill, it is a more mixed picture for those located elsewhere.
Property specialists say that in many places rate bills will be less, as the rentable values on which rates are based have decreased since the previous revaluation in 2010.
For those hoteliers to be hit hardest, a potential doubling of the bill would make for an enormous amount of extra expenditure. Business rates are usually considered the third largest outgoing cost for hospitality operators – after rent and staffing costs.
In England, if your property has a rateable value below £18,000 – or £25,500 in London – you’re considered a small business. From April, small business rate relief is only available to those properties with a rateable value of £15,000 or less.
These leaves businesses with a rateable value between £15,000 and £18,000 in a potentially scary financial situation.
With this in mind, the government has now extended an olive branch to those hoteliers facing the greatest increases proportional to their business size.
In his recent Budget, Chancellor Philip Hammond presented three measures to ease the pressure:
- Businesses that lose the small business rate relief will not see their business rates bill increase by more than £50 per month next year. This means that those businesses in the £15,000 to £18,000 bracket will not face a sudden dramatic bill increase.
- Local authorities will be awarded a £300 million fund to provide discretionary relief for hard-hit businesses. This will allow councils support to those businesses negatively affected on a case-by-case basis.
- About 90 per cent of pubs will receive a £1,000 discount on business rates bills.
How are business rates calculated?
Business rates are based on what the Valuation Office Agency (VOA) believes is the rental value of the building a business occupies. This is why a larger building in a more prestigious area always pays more than a small building in a poor one.
The VOA then looks at business turnover and what service is provided by hotels. The rateable value will be deemed higher if turnover is higher and service is more comprehensive.
Once the rateable value is decided by the VOA, the values are used by councils to calculate bills for each building.
If a ratepayer believes that their valuation is wrong, they will be able to challenge it after 1 April.
What can hoteliers do?
In light of business rate changes, it is more important than ever to run your hotel as efficiently as possible, to keep costs down and protect profit margins.
Our property management system, Hotel Executive, can transform the running of your hotel, improving customer service, efficiency and sales and marketing opportunities.
If you would like to know more, then please get in touch.