Business health check – a life ring for distressed businesses
The UK hospitality industry is the third largest employer in the UK, with 3.5 million people working in the sector, according to UK Hospitality. The 2024 Autumn Budget delivered crushing news to hospitality businesses already in a precarious financial position due to low consumer demand, high inflation, and a historic debt backlog from the coronavirus pandemic.
As the hospitality industry shoulders a heavier tax burden this new tax year, active cost-cutting or restructuring measures may be necessary to bring order to company finances. A financial health check can assess exposure to financial risk and how susceptible the business is to bad debt and cash flow deficiencies. It can also underline ways to heighten operational efficiency and supercharge performance.
We look at the tax changes hospitality businesses must contend with in the new tax year and how they can mitigate them.
What tax changes are in store for UK hospitality businesses?
A range of tax hikes for UK hospitality businesses were unpacked at the Autumn Budget in October 2024, with minimal respite provided by the Spring Statement in April 2025. With higher Employers’ National Insurance Contributions (NIC) and an increase in National Living Wage, hospitality businesses with large workforces are the hardest hit.
Employers’ NIC – Employers’ NIC increased from 13.8% to 15%, and the threshold at which employers start to pay Employers’ NIC (secondary threshold), was reduced from £9,100 to £5,000. Employment Allowance increased from £5,000 to £10,500 per year, which cushions the blow for employers and helps balance the scales.
This will have a devastating impact on employee-dense businesses as labour costs exponentially rise. To absorb the increase in hiring and maintaining staff, employers may be required to make major cutbacks to keep the business in the black.
National Living Wage (NLW) – NLW increased by 6.7% to £12.21 an hour. Staff aged between 18-20 years old will see their hourly rate increase from £8.60 to £10, and apprentices will see the biggest increase as the rate jumps from £6.40 to £7.55.
Business rates relief – While business rates relief continues to be available for eligible businesses, it has been reduced from 75% to 40% and capped at £110,000. This means hospitality businesses will have to set aside more funds for business rates.
Labour’s ambitious business rates reform is due to come into force in April 2026 which will permanently lower business rates for hospitality businesses. This is expected to be funded by a higher tax rate levied on online business premises to level the playing field however, the hospitality industry must survive the current financial year.
A helping hand for UK hospitality
As UK businesses get to terms with the new cost of doing business, hospitality businesses with large workforces may require a helping hand to weather the storm. With higher taxes and forecasts of a potentially bitter Autumn Budget, trading conditions remain challenging for British businesses.
A financial health check can provide an accurate picture of how well a business is faring under current trading conditions. If the future of a business is uncertain and the business can’t afford to pay company debts, professional insolvency guidance from a licensed insolvency practitioner can help secure a positive outcome and provide a long-term roadmap, which may involve company restructuring.
Company restructuring consists of streamlining operations to help a business operate in a leaner and more efficient fashion. This can slice operating costs and avert the risk of company insolvency. Restructuring can unlock more cash into the business and reduce the risk of a cash flow crisis. With higher overheads and an increasingly bleak outlook for British businesses, insolvency support can keep a business buoyant in turbulent waters.
For more information on how professional insolvency support can strengthen the health of a business and reduce the risk of insolvency, get in touch with Mike Jenkins, Insolvency Director at Begbies Traynor Group York at mike.jenkins@btguk.com.