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28 November 2021

Opinion from Adrian Leopard & Co

News impacting business from Adrian Leopard & Company - Insolvency Practioners & Mediators

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Rise in national insurance will be a crippling blow to the hospitality industry
Adrian Leopard 196

Rise in national insurance will be a crippling blow to the hospitality industry

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After the pandemic the increase in national insurance will certainly put the cherry on the rise in hospitality industry payrolls

Probably in the minds of the general public, restaurants, pubs and hotels make good money because they certainly know how to charge!

This could not be further from the truth. The hospitality industry in the UK is an appallingly bad performer when it comes to profitability, make no mistake. But then the hospitality industry goes from huge 100+ room posh hotels with all the facilities right down to the village pub run by just the landlord and landlady and of course includes everything in between.

Anyone who has studied the financial accounts of these businesses will know exactly what is what! Large companies and groups get by because they have substantial financial resources behind them, have a clientele in the main which can afford to pay top dollar and are run generally speaking on very tight commercial lines. They do not make as much money as they would like to but they are in profit, other perhaps than in times of pandemic. So Mandalay Bay will probably do okay.

Let’s look at the standard UK market for such businesses. Very very few indeed are run on a sensible commercial basis. What is a sensible commercial basis? It is where all the people who work in the business are paid the proper commercial rate for the job, including the directors. They have to operate sound systems of control and really do have to know their business. They have to understand waste, pricing, competition and deliver a good quality product. Where the business is unincorporated instead of there being directors, there will be proprietors. They too have to be remunerated as otherwise there is no point in doing the job.

And after paying all their proper costs, they need to deliver a profit based on the capital value of their business, just like they are independent investors.

Unfortunately there are few businesses in Britain like that. It is a fact that there are so many making losses; one wonders how they get by at all.

And when people come to buy these businesses, they pay way over the top – in essence they are paying out valuable capital merely to have the privilege of being underpaid for the job they are about to undertake.

So when the Prime Minister announced that national insurance contributions will be going up next year, this will just pile more agony on the unfortunate hospitality industry whose payroll costs are going to increase by another 2.5%.

How will this be paid? Really there are not many answers to that question. The principle answer is by an increase in prices to the public but will the public wear that? The other alternative is that we may start to see mass insolvencies with the increase in NIC just being the cherry on top.

The new tax is more than just national insurance because it is going to be levied on working pensioners who are exempt from NIC and recipients of dividends although it should be said that people pay themselves dividends out of their companies to avoid national insurance contributions!

But for hospitality businesses, since the beginning of 2016 increases in national minimum wage, workplace pensions will all come together to produce an overall rise in the payroll of approaching 45%. How is such an increase going to be sustainable? Turnovers have been dropping, staff ratios have been growing as a result and there has been a major sea change in pay rates.

So if you are running one of these businesses you will need to think carefully about future financial strategy.

And just to recap on today’s figures, another 38975 new cases making the seven day rolling figure now 272475, up 15.3%. Deaths up at 191 making the seven day rolling figure 932, up 26.1%. Finally new patients at 933 with the seven day figure at 6730, up 3.1%.

These are growing numbers. The trend is now clear.

Adrian Leopard 08-09-21

Photo Sun Jin Cho

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