THE Scottish hospitality industry has warned that operators face a “cliff edge” when the current relief from business rates ends next month, amid fears that spiralling costs will lead to a surge in business failures.

Companies in the hospitality, retail and leisure sectors have been entitled to 50 per cent relief from the property tax, up to a maximum of £27,500 per business, for the first three months of the current financial year, which began on April 1. The relief was one of the last support measures provided by the Scottish Government to help businesses through the pandemic, and followed a one-year period in which firms in the hospitality, retail and leisure sectors had been fully exempt from business rates.

However, the current relief is poised to end as the hospitality sector struggles under the weight of soaring costs and chronic staff shortages, which are causing many operators to restrict trading hours, and the impact of the cost-of-living crisis. That means the owners of pubs, bars, hotels and restaurants will soon have to pay thousands of pounds more in rates when cash flow is under huge pressure. There is also anger that rates bills are based on the rateable value of properties that were assessed before the pandemic hit in early 2020.

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“The end of the 50% business rates relief in July presents a further cliff-edge for hospitality businesses now struggling with increased costs across the board,” said Leon Thompson, executive director of trade body UKHospitality. “Energy, wages, food and drink – costs continue to go up and businesses are trying not to pass these rises on to customers who have their own cost-of-living crisis to manage. However, when business rates return to 100% that will be a further cost which many businesses will find impossible to absorb.”

Mr Thompson’s comments were echoed by Paul Togneri, senior adviser of the Scottish Beer & Pub Association, who argued that it is “short-sighted” of the Scottish Government to reimpose full business rates given the acute challenges now facing the industry.

“The end of rates relief comes as a big blow to our sector, at a time when we are battling with price rises due to inflation as well as labour shortages and numerous supply chain issues,” Mr Togneri said. “This will add further pressure to publicans trying to make ends meet.”

One major operator noted that his business faces an increase in costs of £3.3 million in total this year, when higher rates bills, surging energy costs and the return of value-added tax to 20 per cent are taken into consideration. And he said this is before the impact of soaring inflation and rail disruption on consumer confidence are factored in.

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Nic Wood, founder of Signature Pubs, which has 21 venues across Edinburgh, Glasgow, Aberdeen, Bridge of Allan and St Andrews, said his company’s rates bill will revert to £680,000 a year when the current relief ends. And while he said the current relief had provided a small amount of comfort, he said the cap of £27,500 per business – “no matter what size your business is” – has made little difference to companies of Signature’s size.

“It is all fine and well saying pubs or businesses will get rates relief, [but] for us it is next to nothing as a business,” Mr Wood told The Herald.

The company will pay full rates again while facing the prospect of its gas and electricity bills going up by around £950,000, with Mr Wood also flagging the impact of value-added tax returning to 20%, which will effectively add £1m of costs per year, and the 1.25% increase in national insurance contributions, which took effect in April. The 6.6% rise in the national minimum wage will add £600,000 to Signature’s wage bill, he said.

“These expenses alone are worth about £3.3m – we will pay out £3.3m in these things more than we did last year,” Mr Wood said. “To put that in perspective, I don’t think we have ever made £3.3m at Signature pubs. We have never made that much profit in a year, and that is how much more [we are paying].”

He added: “The amount it is costing our business to function is a country mile from where it was 12 months ago.”

Mr Wood fears the welter of costs will lead companies in his industry to fail, declaring that he is “surprised more haven’t”.

“I don’t know how much the government can do overall,” he said.

“I do think there needs to be more of a look at the rates and the VAT side of things, because these were things we were really pushing for before, to try and have rates relief for a year. That wouldn’t necessarily have helped us, but it would have helped a lot of smaller businesses.”

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Mr Wood added: “Businesses need to survive this, and get through it. If governments don’t help them, at the end of the day there will be no tax to be paid because the businesses will have gone bust.”

Stephen Leckie, chief executive of the Crieff Hydro Family of Hotels, warned the return of full business rates alongside the huge rise in other costs will affect the ability of companies to reinvest, which will harm Scotland’s competitiveness as a tourism destination.

He notes the electricity bill for the family’s Crieff Hydro hotel in Perthshire will rise to £1.5m a year from £600,000.

Mr Leckie told The Herald: “We are now back to paying the equivalent of £1.5m a year across our company for business rates.

“So the big ask now is: how is that calculated? Let’s look at the formula. That is the challenge from the Scottish Tourism Alliance and the Scottish Chambers of Commerce.

“It is a significant figure, and if we are to recover and start to reinvest back into our businesses… you can’t do that whilst you are paying huge business rates and now VAT. It is a very highly taxed industry.”

Mr Leckie added: “We needed to remind ourselves [that] VAT is the second highest in Europe on accommodation.

“And many of us believe business rates are exorbitant – way higher than they need to be. Compared to other industries this industry is overpaying on tax.”

Day two: Experts raise concern over rates appeals