Ashworth Treasure RSS Feed: Hotels

Payroll and bookkeeping services – have you considered outsourcing?

Fri, 21 Jan 2011 14:53:48 GMT

Outsourcing business functions such as bookkeeping and payroll is a growing trend amongst small and medium sized hotel businesses in the North West.

In the current economic climate it’s important to keep costs under control. Several of our hotel clients have asked me how they can make their internal financial operations more efficient.

One of the ways Ashworth Treasure accountants can do this is by providing an outsourced payroll service. The benefits include:

Reduced costs e.g. no PAYE/NI, no holiday pay or sick pay
Increased flexibility
Improved quality i.e. training gained in professional accountancy practice
Improved credit control
Assurance that employee are paid accurately and on time

Payroll and bookkeeping are ideal for outsourcing as they can be separated from other areas of your business.

Ashworth Treasure provides professional bookkeeping and payroll services at competitive prices.

Why not give us a call or email tonycooney@ashworthtreasure.com.

There is no initial fee and you are not obliged to go ahead with any of the services we recommend.

The new Equality Act - How does it affect the North West hotel sector?

Thu, 16 Dec 2010 16:32:47 GMT

The new Equality Act came into force on 1 October 2010 targeting discrimination across a range of issues such as pay, disability and age. It consolidates 9 pieces of legislation into one act, so could be described as a tidying up exercise.

Having researched the changes, there are some significant ones which could have an impact on the North West hotel sector employers and their staff.

As a hotel owner I think it would be fair if you were a little put out by having to get to grips with another set of rules, in fact the government has suggested that the total cost to businesses in the UK of simply understanding the new legislation will be £189.2m!

I think it is important to get up to speed quickly though, so as to avoid any unnecessary claims from your employees.

There have been many changes, but the ones I think will most affect Lancashire’s hoteliers are:

Secrecy clauses - it is no longer lawful to prevent discussions regarding pay inequality. Beware! This may create an increase in equal pay claims.

Harassment - you will now be liable for the harassment of your employees not only by colleagues but by third parties such as contractors and hotel guests. However, as long as you take reasonable steps to prevent harassment occurring, you should be OK.

Health questions - as an employer, you are not allowed to ask about the health of potential employees before offering them a job.

So, what should you do now?

Review your existing policies and procedures and ensure they are clearly and effectively communicated to all managers.
Ensure you have Employment Practices Liability insurance which in my experience is more widely available and cheaper than it used to be. It should cover any payouts for claims made against you.
Update your contracts of employment, if required

Obviously this blog is only a quick summary of the new Equality Act, but I hope you found it useful.

If you are an hotelier in Lancashire, Ashworth Treasure accountants are keen to become your business partner rather than just your accountant.

Employment in the UK

Fri, 19 Nov 2010 15:58:16 GMT

A report commissioned by the British Hospitality Association and produced by Oxford Economics highlights the hospitality industry as being the FIFTH largest employer in the UK.

In these uncertain times it gives us assurance that the hospitality industry still has a strong foundation, employing over 2.4 million people, 400,000 of which are employed by hotels alone.

This emphasises the importance of the hospitality industry in the UK and especially for us in the North West and Lancashire area. The core hospitality economy has an estimated turnover of £90bn, contributing £34bn in gross tax revenue which I expect is a great help to the government in the current economic climate.

Here at Ashworth Treasure, being based on the Fylde Coast, we deal with a number of hotels and restaurants and in these gloomy times there are a lot of worried people. In 2009 the number of hotels that failed rose by 61%, mainly due to the continued slump in business travel and the banks reluctance to lend money. We did not see 2010 get off to a good start with the bad weather and volcanic ash saga.

Operationally hotels might have started to see light at the end of the tunnel with increased occupancy levels and higher daily rates, let’s just hope the upward trend continues until we reach the end.

Ashworth Treasure accountants has many hoteliers as clients and the trend we have seen is that they are turning to us for more and more help and advice. Specifically in the preparation and interpretation of management information.

We also specialise in giving hoteliers tax and business advice, whether it be buying or selling their hotel, tax planning - you name it! So if you are based in the North West area, such as Lytham or Blackpool and need some business advice, give us a call.

2011 VAT Changes – a practical summary

Mon, 15 Nov 2010 09:52:43 GMT

The rate changes on Tuesday 4 January 2011 from 17.5% to 20%. The VAT fraction will change from 7/47 to 1/6. The way in which you complete a VAT return will not change nor will the quarter end.

The most frequent question being asked is “At what rate do I charge VAT for goods and services currently being processed?”

Obviously the supply takes place when goods are delivered or services performed. The tax point for VAT however may be different.

The actual tax point is when the invoice is issued if it is either before, or within 14 days after the supply. There can be exceptions though to the 14 day rule e.g. it can be 3 months for solicitors. Also, the actual tax point will be the payment date, if this is earlier than when the invoice is issued. There are also special rules that apply when there is a rate change and so the same supply could have different rates and to some extent you can choose. Complicated? You bet.

Examples:

Goods delivered to customer on 28 December.
If you invoice on 28 December 2010 the rate will be 17.5%. If you invoice on 5 January 2011, the rate will be 20% i.e. within 14 days of supply. If you invoice more than 14 days after 28 December the rate will be 17.5% (i.e. the date of supply).
Invoice raised (or deposit paid) on 28 December by customer for goods to be delivered in January.
17.5% will apply to the deposit and 20% will apply to the balance. You do have the option to charge 20% on the deposit which may simplify matters if your customer can recover the VAT.
Issuing a credit note in January 2011 for item sold in December 2010.
The same VAT rate should be used for the credit note as used on the original invoice. For this example it would be 17.5%
Any services you provide can be split pre and post January even if you supply continuous services where usually, payment in advance triggers the tax point.

As with previous VAT rate changes, H M Revenue & Customs will be applying a relatively ‘light touch’. The amounts of money at stake during a changeover aren’t going to be life changing. Furthermore, to the extent that you supply other VAT registered businesses, any errors are ‘neutral’.

Our advice?

Be sensible in your approach and don’t panic.
Plan ahead to maintain your profit margins.
Sort your software out – it’s easy enough with the likes of Sage.

In these strange times, you can always get some advice outside of your usual circle of advisers. Tony Cooney is a Chartered Tax Advisor and member of the Chartered Institute of Taxation. Ashworth Treasure is a practical firm, giving practical advice. Feel free to get in touch (tonycooney@ashworthtreasure.com) and we will come and see you for an informal chat to discuss your particular issues.

North West Hotels: Big Vs Small - The fight is on

Thu, 21 Oct 2010 14:44:27 GMT

Over recent years, the big hotel chains, including those in the North West, focused much of their marketing budget on the corporate market. There was good money to be made in conferences, meetings and corporate entertaining. These corporate firms, many of which are located in Lancashire and the North West area generally, are now looking at the easiest ways to reduce their costs and of course travel budgets have been the first to be cut – significantly.

How does this affect the North West owner managed hotels?

Well, the effect is twofold. Firstly the corporate customers are reducing their bookings and when they do book, they are always pushing for reduced rates.

Secondly, the larger chains are now competing more vigorously for leisure travellers as there has been a major shift and they have become more profitable than corporate clients. This has a direct effect on Lancashire’s smaller family run hotels. They need to up their game to ensure that they are worthy opponents and ensure that their customers are not being wooed by the larger hotels.

So, I think that the best way to handle this is to fight back, and here are my top 5 tips:

Create a great website – most potential customers will be influenced by what they see on the internet before booking
Provide good value for money
Build loyalty – offer a discount to returning customers, provide them with updates by email etc.
Review Trip Advisor and make changes where necessary to improve your customer’s hotel experience
Advertise wisely ensuring travel agencies are marketing your product well

If you own/run a hotel in Lytham, I hope that you have found my blog interesting. At Ashworth Treasure we are keen for our clients to see us a business partners rather than just their accountants. As well as the business advice demonstrated in this article we can provide specialist tax advice.

North West Hoteliers – Agency Workers

Thu, 09 Sep 2010 14:10:04 GMT

Agency Workers Regulations are coming into force in October 2011. This is still a way off, but if you use agency workers, there is some planning ahead to be done.

The new regulations give agency workers equal rights to their employed colleagues after just 12 weeks in a given job. This means that they will be entitled to the same pay, holidays, overtime etc as permanent staff members. This could increase your employment costs considerably.

Let’s look at this in some more detail…….

Who is an agency worker?

If you use people from a work agency to work in your hotel on a temporary basis, they are classed as agency workers

Who is not an agency worker?

People you use who have their own businesses i.e. self-employed or working via their own limited company.

What is the 12 week rule?

An agency worker must work continuously for 12 weeks i.e. in the same position with the same hirer. A new period would only start if a new position was given that was substantially different or there was a 6 week break between jobs for any given hirer.

What will they be entitled to after 12 weeks?

Pay
Overtime
Bonuses
Holidays
Shift allowances
Luncheon vouchers

How does this affect you?

If the new rules are not met, it is the work agency that is initially in trouble, BUT if they can defend this then any liability may come to rest with you. Any worker who has not been treated correctly may be awarded compensation which could be as much as £5,000.

What should you be thinking about over the next 12 months or so?

Should you be using agency workers
Tightening of record keeping to keep an eye on the length of service for agency workers
Possible changes to other working practices/conditions

At Ashworth Treasure Accountants, we work with many hotels, providing general business advice and information such as this, as well as providing hoteliers with tax advice and advice on buying and selling hotels.

Ashworth Treasure Hotels Newsletter - Management Reporting

Mon, 09 Aug 2010 09:14:57 GMT

As part of the overall tax advice and business advice we provide, as expert accountants to the Hotel sector across the North West, we will be issuing a small series of newsletters focussing on specific topics of relevance. In this first edition, we have addressed management accounts and their impact on making informed business decisions.

Introduction

We have prepared this newsletter as the first in our series of quarterly documents aimed at the hotel and leisure industry. We hope that you enjoy reading it.

Here at Ashworth Treasure we have a team of specialists who look after our hoteliers. We have worked with the hotel sector for over 25 years and believe are biggest strengths are our plain speaking and open access to partners. We are also up to date on the latest information affecting the catering and hospitality industry.

Making Informed Decisions

In financially difficult times, we believe that the businesses which prosper are those which have up to date financial information to hand and can make informed decisions rather than making decisions by gut feel or just looking at the company bank balance.

Management Accounts

How can you run a business without them? Isn’t that like driving whilst blind folded!!

You should work together with your adviser to get the best from your in-house accounting team and produce management reports which can take whatever form that is best for you.

This is one of the great features of management accounting — there is no need to conform to any format or layout. You can tailor the management accounting function to your needs. For example, they can be prepared monthly, quarterly or even just 2 or 3 times per year.

They can contain key performance indicators, which can be whatever you want them to be, such as gross profit margin reviews for wet and dry sales; occupancy reports, etc. They can include more than mere financial information, for example customer feedback, or market share statistics.

Perhaps even more useful would be to prepare budgets and then compare with actual performance.

Our aim when working with businesses is to agree an initial format and prepare a “pack” which is used for discussions and then on to decision making. This is not set in stone, we are very flexible and this “pack” can be changed whenever appropriate. We don’t believe in standing still.

Any information produced needs to be provided in a timely manor. There is no use in providing monthly management accounts too late for you to make informed decisions on information they contain.

Our Experiences

Over the last couple of years, we have seen a significant increase in the number of our clients wanting to receive timely management reporting in order to help develop their businesses and reach their strategic goals. In this ever changing climate managers and business owners are seeing how important it is to take an enlightened view as to how well their hotels are performing. They are requesting regular financial documents in user-friendly shape.

Some want accounts on a monthly basis which include a commentary on performance and discussions on problem areas and some need accounts to provide to their bank. Others require accounts every 4 months to help them to keep in touch with their businesses progress.

Feedback from our customers and their bankers is that excellent user-friendly management reports are worth their weight in gold.

If you are a hotelier in Lytham, or further afield in Lancashire or the North West and would like to talk about specific tax advice or general business advice with a specialist firm of accountants, then please get in touch, we’d be delighted to come and see you.

Employment costs – What’s changed?

Tue, 29 Jun 2010 17:09:37 GMT

In the recent emergency budget there were various changes to employment taxes which may effect your business and your staff.

As an employer I’m sure you’re used to your staff moaning about their pay and always angling for a pay rise, especially at the Christmas party! Well, there is going to be an increase in the personal allowance by £1,000 in 2011/12 to £7,475. This will effectively give them a pay rise so you don’t have to. Please be careful though, higher rate taxpayers will not benefit from this change because the basic rate limit will be cut.

If you are a new business in Lancashire, or in fact anywhere outside of London there is some great news regarding National insurance contributions.
Employers will not have to pay the first £5,000 of class 1 employer NICs that would otherwise be due in the first 12 months of employment. This new concession applies for each of the first ten employees hired in the first year of business.

The magic date is 22 June 2010 i.e. any new business setting up on or after this date will benefit from this NI holiday. The scheme will last for 3 years.

On the downside, National insurance contributions for employees and employers are increasing by 1% from 6 April 2011. This is to some extent mitigated by the announcement that the level at which employers start to pay NIC’s will increase by £21 per week above indexation. The cost of the combined measures will therefore be disproportionately borne by businesses employing relatively higher paid employees.

How do the changes to capital gains tax affect your company?

Tue, 29 Jun 2010 17:07:56 GMT

The short answer is that they have no effect at all because companies don’t pay capital gains tax! Companies pay corporation tax on their capital gains. Am I stating the obvious? The owner of a manufacturing business rang me the other day and he was frantic about how the changes would affect his company – so not everyone will think it is an obvious statement.

The bones of the changes are that the rate of tax for higher rate taxpayers has gone up from 18% to 28%. For business owners Entrepreneurs Relief now means that lifetime gains of up to £5m are taxed at 10%, whereas previously this was £2m at 10%.

A higher rate taxpayer may still think that 28% is attractive but you need to remember that you may have owned the asset for some time and hence you are effectively being taxed on inflation. For example if you bought a property in 1990 and its value only kept pace with inflation then you are not actually any better off now, but you will be taxed on the sale on effectively the inflation amount. This doesn’t really seem fair.

For the manufacturing entrepreneur who owns the shares of the company, the (potential) good news in the budget is the extension of Entrepreneurs Relief. So, how does it work now compared to before?

Let us say that ‘A’ and ‘B’ are selling their respective successful manufacturing companies for £4million and £20million.

Before: ‘A’ would pay about £560,000 in capital gains tax (an effective rate of 14%)

After: ‘A’ would pay about £400,000 in capital gains tax (an effective rate of 10%)

Nice.

Before: ‘B’ would pay about £3.44m in capital gains tax (an effective rate of 17%)

After: ‘B’ would pay about £4.7m in capital gains tax (an effective rate of 23.5%)

Not so nice.

If you sell the shares in your trading company for £5m or less, then the rate of 10% is very attractive.

If your company sells its business and assets (as distinct from you selling the shares) then the company pays corporation tax on the gain and you pay further tax when you get the money out of the company! So make sure that any future sale is done correctly.

Accountant - valuable asset or necessary evil?

Tue, 22 Jun 2010 09:32:35 GMT

Whether you are a hotel business or not, ask yourself these questions?

Does your accountant get in touch during the year and ask about profitability and whether matters need to be considered before the year end?
Has your accountant warned you about the income tax rate increases that might make income tax as high as 60%?
Does your accountant have an in house Chartered Tax Adviser?
Does your accountant explain your accounts and tax position to you at your premises?
Does your accountant discuss ways of mitigating tax?

I am sure you can see where I am going on this.

If your accountant just gives you a basic compliance service then it can only be a necessary evil where little benefit is obtained.

Hotel businesses are complex and there is so much scope to have a proactive accountant involved. Yes, your costs will go up. However if you can get a trusted accountant who understands taxation, then they can become a sort of de facto director of the business. Put in this context then the price is relatively cheap.

If you would describe your accountant as a necessary evil, then seek out a tax accountant who will get to know your business and provide you with constructive advice.

Plans to extend paid maternity leave passed by EU

Tue, 30 Mar 2010 13:37:44 GMT

Having a good workforce is essential to the success for hoteliers. Unfortunately any changes in employment law seem to be weighed in favour of the employee. Whether it is this issue or broader aspects of business and tax advice, you can contact Ashworth Treasure for strong support within the hotel sector.

Draft legislation to extend maternity leave to 20 weeks on full pay has been given the go-ahead by the European Parliament committee.

Under current European rules pregnant women are entitled to receive their full salary for 14 weeks of their leave. New mothers in the UK may take a year off work, with the first six weeks on 90% pay followed by 33 weeks on the statutory maternity pay rate. The remainder of the leave is unpaid.

The proposals, which will go before the full European Parliament in March, have prompted concern from the British Government and business leaders.

Experts predict that the Treasury may be forced to find an extra £2 billion if the EU plans become law.

Commenting, the UK's Employment Relations Minister, Lord Young, said: 'A substantial increase in maternity leave paid at full or near-full pay risks undermining this delicate balance at a time when economies across the EU can least afford it.'

Meanwhile, a spokesman for the Institute of Directors said the directive was a 'massive worry' to the organisation.

Small firms 'turn to sales and marketing' to beat recession

Tue, 30 Mar 2010 13:36:06 GMT

The hotel industry is very competitive, more so in these difficult times. As accountants to the hotel sector, we have also seen a steady increase in marketing spend as maintaining occupancy becomes ever more important for our Lancashire based clients.

Small businesses are stepping up their sales and marketing strategies in a bid to thwart the effects of the recession, according to a recent survey.

The study, carried out by the Forum of Private Business (FPB), revealed that while many small firms have cut their operational costs, they are now hiring additional sales staff, boosting their marketing activities, and carrying out improvements to their websites.

More than half of firms reported that they expect turnover to increase in 2010, while 44% expect their business to grow.

The survey was the first to be conducted by the FPB's new Economy Watch panel, a group of members who are sharing their experiences of the recession and its aftermath.

Overall the results were positive, with just 13% of firms reporting that they were concentrating their efforts on cost-cutting measures. Meanwhile, 80% of firms said that they found that the cost of borrowing was 'affordable'.

However, many do expect the difficult times to continue, with 60% of businesses anticipating increases in costs and 75% expecting tax increases.

Thomas Parry, FPB Research Manager, said, 'These findings are quite encouraging and show there's a healthy amount of fighting spirit among smaller firms'.

'However, much of this optimism is based on the hope of a recovering economy and increased business and consumer confidence.'

Employment law 'stifling UK businesses'

Tue, 30 Mar 2010 13:33:47 GMT

This article, originally posted on our main website provides some interesting business advice for our hotel clients in the North West. The most significant overhead for any hotel is its wages costs. Not only are staff expensive, but also the laws and regulations attached are a minefield.

The 'relentless flow' of complex employment law is stifling UK competitiveness and jeopardising future job creation, a leading business group has warned.

A new report published by the British Chambers of Commerce (BCC) argues that basic workplace protection rules have been replaced by 'burdensome' rights to request and extended time-off provisions. It also suggests that 'unreasonable' health and safety restrictions are adding to the red tape burden.

'There is an emerging consensus that employment law is now weighted too far in favour of the employee,' said David Frost, Director General of the BCC. 'Many rights come from EU legislation, which is informed by and aimed at labour markets very different to our own. The result is that the UK and the EU are becoming increasingly uncompetitive due to the rising cost of labour.'

The study, entitled Employment regulation: up to the job?, outlines a number of proposals which the lobby group claims will 'reduce and rebalance' the burden of employment legislation.

Calling for an 'urgent overhaul' of the UK's 'dysfunctional' tribunal system, the BCC recommends that employers should not have to wait more than 16 weeks for a first tribunal hearing.

It also suggests that the law should be changed to allow employee dismissal if an employer 'reasonably believes' that a member of staff’s actions constituted gross misconduct.

'Encouraging job creation - and therefore wealth creation - must remain the Government's priority as economic recovery continues,' added Mr Frost. 'A three year moratorium on the implementation of new employment law is crucial, as is cancelling the 1% hike in employer National Insurance contributions, planned for April 2011.'

Ashworth Treasure is pleased to be launching their new hotel blog

Mon, 22 Mar 2010 12:44:59 GMT

At hotels there is always something happening which is why they’re so interesting. Along with the challenging accountancy and taxation issues comes the funny stories and unique experiences. We relish the opportunity to share some or our thoughts and insights as we go about our work as chartered accountants and tax advisers in the hotel sector.

So here at Ashworth Treasure we support a number of hotels, large and small, but each with their own issues around occupancy, cost of goods and services, competitive advantage, staffing, cash, reliable integrated suppliers and so on. Over time we’ve come to recognise the way these issues impact on profitability and the experience of two of our partners as hotel owners in the past has been invaluable in helping us develop strong expertise in this area.

Many see hotels as a home from home, especially when we’re on holiday or frequent business travellers. The hotel, and in particular the room we are allocated can make or break the experience. What about the hotel in Sweden which is transitory and is only there certain times of the year – has no central heating and you sleep, quite literally on a block of ice – well apparently it’s now the ‘trendiest way to spend the winter’ according to our friends at the blog Interesting Thing of the Day!! (http://itotd.com/articles/418/ice-hotels/)

Not sure it’ll ever catch on in Lancashire – but hey, another winter like this last one and who knows what our next hotel sector client might look like!

Employment in the Hotel Sector - Chapter Three

Mon, 22 Mar 2010 12:39:01 GMT

Work-life balance and flexible working are important to all hotel owners and their employees, even more so when they start a family.

Hotels are always under pressure to provide quality service 24/7. The rules below regarding maternity/paternity leave mean that hotels need to plan ahead to ensure that they are well prepared for employees taking advantage of their entitlement to time off.

You will know well in advance that an employee is preparing to take maternity/paternity leave. This is the time to make plans for covering the work of the absent colleague. Can the work be shared among others – consider this before automatically recruiting a temporary replacement. Ensure that support is shown to the employee taking leave, don’t make them feel that they are “letting people down”, and finally, consider keeping in touch (KIT) days.

Maternity/Paternity - The Facts

Who qualifies for maternity leave?

All expectant mothers are entitled to 26 weeks of ‘Ordinary Maternity Leave’ and 26 weeks of ‘Additional Maternity Leave’. It does not matter how long they have worked for you to qualify and the two weeks after child birth are compulsory after.

Eligible for Statutory Maternity Pay (SMP)?

A pregnant employee qualifies for SMP provided she has:

at least 26 weeks' continuous employment with you extending into the 15th week before the expected week of childbirth
average weekly earnings (AWE) at or above the lower earnings limit for National Insurance contributions (NICs) - £95 where this falls in 2009-10
provided you with confirmation of the pregnancy - a form MATB1 or an equivalent document issued by her midwife or GP
given you 28 days' notice of the date from which she wants to start her SMP

SMP

SMP is paid at a rate of 90% of there weekly earning for 6 weeks and the lower of £123.06 per week or 90% of there weekly earnings for the next 33 weeks.

Paternity

The current entitlement for fathers is two weeks leaves. This can to be taken in a block after the birth of the baby and has to finish within the first 56 days.

New government legislation is set to come into force in April 2010, with effect for parents of babies due from 3 April 2011. This will allow fathers to benefit from up to 26 weeks' additional paternity leave if the mother of the child returns to work before the end of the maternity leave period to which she is entitled. This will be available during the second six months of the child's life and may be paid if taken during the mother's statutory maternity pay period.

There is a common misconception that both the mother and father could potentially be off for 6 months at the same time. This is NOT the case, the 6 month offering to the father is instead of the mother. However there are probably more examples of couples working together in the Hotel sector than any other service industry. Therefore it is more likely that these will be taking the full 12 months leave in future rather than the normal time a single parent would have..

Employment in the Hotel Sector - Chapter Two

Mon, 22 Mar 2010 12:33:37 GMT

Service Charges, Tips, Gratuities and Cover Charges

The basics – What is a Tip? What is a service charge?

HMRC defines a tip as “an uncalled for and spontaneous payment offered by a customer either in cash, as part of a cheque payment, or as a specific gratuity on a credit or debit card transaction”.

A customer may make different types of payment on top of the basic charge for the meal or service, but these may not necessarily be classed as a tip. The payments could be:

a mandatory service charge
a discretionary service charge
a tip paid to the employer as part of a cheque, debit or credit card payment
a cash payment paid into a staff box or similar arrangement
a payment in cash left on the table.

A service charge is an amount added to the customer’s bill before it is presented to the customer. If it is pointed out to the customer that the charge is a discretionary amount and the customer is under no obligation to pay it, it is a voluntary service charge. If this is not the case, it is a mandatory charge.

Where mandatory charges are passed out to employees, NIC is always due on the payment, irrespective of what arrangements are in place for the sharing out of tips.

Is tax due on these payments and who is responsible?

All tips are taxable!

If the customer leaves a cash tip on the table or gives it directly to the employee then it is the responsibility of the employee to inform HMRC. The easiest way to deal with these types of tips and to help your employee keep on track, would be to advise them to call HMRC. They can inform them over the phone and they will automatically adjust for this through their tax coding. They can also enter the details direct onto their self assessment tax return if preferable.

With any other arrangement, including a tronc, the responsibility lies with the employer to deduct PAYE/NIC at the time they are paid out.

Tronc?

A tronc is an arrangement for pooling and distributing tips and service charges, the operator is known as the troncmaster and he is elected by his fellow employees.

For tips and voluntary service charges distributed by a tronc, PAYE tax is always due and it is the troncmaster's responsibility to calculate and deduct it. As long as the employer has no involvement in the allocation there is no obligation on the employer. A separate PAYE scheme is usually in place where a tronc is in operation.

NICs are exempt on payments of tips as long as you do not have a role in deciding which of your employees gets money from the tronc and how much each employee should get.

Can tips count towards the employee’s wage?

From 1 October 2009 it is was unlawful for employers to use any type of the above tips towards the payment of the National Minimum Wage As with all other circumstances where there is a failure to pay the National Minimum Wage, it could result in an enforcement notice being levied.

Employment in the Hotel Sector - Chapter One

Mon, 22 Mar 2010 12:29:40 GMT

National Minimum Wage

The hotel industry is a seven day a week, 24 hour a day industry, making employment a major issue. Over a series of short articles we will review and discuss the major areas surrounding employment in the hotel sector, so as to keeping you abreast of the ever changing rules and regulations.

In 1999 the Government introduced the concept of the National Minimum Wage (NMW). It was made a legal requirement that employers had to pay their employees’ above the lower rate thresholds. The NMW is widely accepted as having been a good measure introduced by the current Government, and there is little indication from opposing parties that they would repeal the legislation after the 2010 general election.

Is your Hotel fulfilling its legal obligations?

All workers in the UK are entitled to the NMW!

A worker is someone who works for you under a contract and is not genuinely self-employed. The contract can be written, implied or an oral (verbal) contract. So in the Hotel industry, this covers everyone from your Managers through to part time or temporary waitresses and washers up!

The NMW rates are based on three age levels and are reviewed every October. From 1 October 2009 the following rates applied:-

Employee aged 22 years and above - £5.80 / hour
Employee aged 18 to 21 years - £4.83 / hour
Employee under 18 - £3.57 / hour

Some exemptions to these rules do exist, for the likes of self employed people, workers who are still of compulsory school age and apprentices. So this impacts on a hotel when, for example, you are employing an apprentice chef under the age of 19, or over 19 but in their first year of Apprenticeship. In these cases NMW does not apply. This would also be the case where say a University Student was undertaking some work experience as part of their hospitality degree but the placement was less than a year. The government has, however, asked the low pay commission to investigate this for apprentices as there is much debate, so watch this space!

What happens if we provide accommodation to our employees?

Accommodation is the only benefit that can be taken into account when calculating the national minimum wage. Where accommodation is provided and the employer charges a fee, they must consider the ‘accommodation offset’ which is currently set at £4.51 per day. Where accommodation is provided free of charge, the notional value counts towards the NMW, therefore the actual pay may be less than the NMW. The accommodation offset will also apply whenever the employer provides accommodation regardless of whether the employee could have chosen not to occupy the accommodation or whether they actually use it. If accommodation is optional to a worker and he chooses to accept the offer then the accommodation offset will apply.

Here are a number of frequently asked questions by employers in the hotel industry:-

Is £4.51 a day all I can charge my workers for accommodation I provide?

NO, you can charge more, but you must ensure the worker is not paid less than the NMW once the accommodation offset is taken into account. Any sum charged in excess of the offset will reduce a worker’s pay for NMW pay purposes.

In what circumstances can I deduct rent from my workers?

Deductions from a worker’s pay can be made where: -

• relevant provision is made in the worker’s contract
• there is a legislative provision which authorises you to do so
• the worker has first given their written consent or agreement.

This rule is found in section 13 of the Employment Rights Act 1996 and applies to deductions for rent regardless of whether the employer is collecting rent for himself or another landlord, or whether the accommodation offset applies.

Note that Section 8(2)(a) of the same Act requires that any deductions from gross pay and the purpose for which they are deducted, must be set out in a written itemised pay statement. This applies in all circumstances where an employer makes any deduction. For example, if an employer deducts £60 a week for accommodation there is no requirement in Section 8 to state that £29.05 counts towards the accommodation offset; all the employer needs to do is show the deduction of £60 and state its purpose.

If I provide the accommodation but require the gas and electricity to be paid separately, also deducted from their wage, does this count as part of the accommodation offset?

Yes, the amount deducted for gas and electricity must be included in the daily allowance however if the worker is responsible for paying the utility companies directly, the accommodation offset rules will not apply to these payments.

Would these rules still apply if I provided the accommodation but arranged their employment elsewhere?

This all depends on the relationship between yourself and the employer and whether the employer can be shown to derive a benefit from the arrangement. If the relationship is one of spouse, business partners, etc it may lead to the conclusion that it is the employer who is providing the worker with accommodation rather than a landlord finding work for his tenant.

If there is no connection between you and the employer and the employer derives no benefit from the arrangement the accommodation offset provisions will not apply.

What will happen if we have overlooked our legal obligations?

It is the employer’s responsibility to ensure their employee’s are paid the NMW. Failure to do so is unlawful and enforcement action may be taken. NMW compliance officers regularly visit employers to ensure these obligations are being met.

For further detail on any of the above, please feel free to contact us.

Phasing Out of the Industrial Buildings Allowance

Mon, 22 Mar 2010 12:20:26 GMT

FACT

In the 2007 budget by Gordon Brown, it was announced that the Industrial Buildings Allowance (IBA) was to be abolished by the 2010/11 financial year. This was a considerable blow for the hotel sector as it substantially reduced the amount of tax relief made available for hotels.

IBAs were introduced by the Income Tax Act 1945 to encourage post-war reconstruction by productive industry, but at that time Hotels were specifically excluded. Legislation to give IBA on capital expenditure when constructing hotels was only introduced in 1978.

The legislation was intended to encourage the holiday trade. Allowances are given for expenditure incurred on or after 12 April 1978 on constructing hotels that are deemed to be qualifying hotels in respect of IBA - other hotels do not.

Expenditure incurred on acquiring a hotel on or after 12 April 1978 does not qualify for IBA even if the hotel is a qualifying hotel unless the hotel was constructed on or after 12 April 1978. For example, the Lytham hotel was constructed in the 1920s. It satisfies the conditions for being a qualifying hotel. If Richard buys the Lytham hotel in March 2004 Richard cannot claim IBA because the hotel was constructed before 12 March 1978.

A hotel has to be in a building of a permanent nature to be a qualifying hotel. It must be open for at least four months in the season that runs from the beginning of April to the end of October. This rules out hotels like a hotel that caters for skiers and is open only in winter.

These are the other conditions to be satisfied before the hotel can be a qualifying hotel:

when the hotel is open in the season it must have at least 10 letting bedrooms,
the sleeping accommodation must consist wholly or mainly of letting bedrooms, and
the services provided for guests must normally include the provision of breakfast and an evening meal, the making of beds and the cleaning of rooms.

HMRC regard the ‘meals test’ as satisfied where the offering of breakfast and dinner is a normal event in the hotel’s carrying on of its business. HMRC do not regard it as satisfied where the service of meals is exceptional, for example, if either breakfast or an evening meal is available only on request.

HOW

The allowance was to be phased out gradually over a number of years, by reducing the % of the relief by 1% each year. See the table below:

Year	IBA %	Second-hand buildings*
2007/08	4	Full fraction
2008/09	3	Fraction x ¾
2009/10	2	Fraction x ½
2010/11	1	Fraction x ¼
2011/12	0	0

* where purchased by second or subsequent owner before 21 March 2007.

In order to prevent businesses manipulating transactions to accelerate relief before 2010/11, balancing adjustments or recalculations of allowances on the sale of an asset (or other balancing events) were abolished for any event occurring on or after 21 March 2007 to 2011. However, where the adjustment arose as a result of an unconditional contract which was agreed and signed before 21 March 2007 (and not varied in a significant way thereafter), balancing adjustments are allowed.

For Instance, prior to Budget 2007, when a person sold an industrial or agricultural building within 25 years of first use, there was a balancing adjustment (giving rise to either a charge or an allowance) based on any difference between the residue of qualifying expenditure (RQE) and the proceeds from the event. The person acquiring the building would then be entitled to a recalculated written down allowance, based on the expenditure that had not yet been written off (taking into account the balancing adjustment) divided by the remainder of the 25-year period. For example, if the remainder of the 25-year period was 10 years and the RQE after the sale was £10,000, the buyer would be entitled to a recalculated WDA of £10,000/10 = £1,000 p.a.

However after 2007 the buyer now effectively ‘stands in the seller’s shoes’ claiming the same allowance as the seller had previously.

EFFECT ON HOTEL SECTOR

The effect of this change to the Hotel Sector was significant, reducing the second-hand value of some hotels as purchasers considered the impact of the reduction in allowances available on the overall cost of using the hotel over their intended period of ownership. The decision had a particularly marked impact in the hotel sector where the capital value of buildings was particularly high relative to earnings. As well as seeing a drop in hotel values, hotel owners have seen a drop in their profits as this relief has been phased out.

Anyone acquiring a second hand hotel after 20 March 2007 is still able to claim IBAs until they are phased out but the amount of expenditure on which they are claimed is restricted to the tax written down value of the building to the previous owner prior to the sale.

There has also been a dramatic effect on new builds. For example a hotelier building a new hotel for £20 million will see an increase in tax of nearly £2 million over the next ten years as a result of these changes. Also, big organisations looking to invest are finding hotel acquisitions less attractive.

However on the other side of the coin, many hotels on which these allowances are claimed will have appreciated in value to in excess of their written down value for tax purposes. On sale of such assets a balancing charge will now NOT arise to claw back allowances already claimed although there will, of course, be tax to pay if capital gains are realised.

So for example, if you were to sell your hotel that cost £1,000,000 and the written down value over 10 years after you bought it was £600,000, previously a balancing charge would have arisen of £400,000 to claw back the allowances already claimed and tax would have been due. However balancing charges no longer exist.

CURRENT POSITION

We are now in year 2009/2010 therefore the 2% rates is applicable, reducing to 1% after April. So if you are still claiming allowances at the 4% rate STOP!

Also, in light of these changes it is now more important than ever to maximise plant and machinery allowances, for most Hoteliers this will be the only way of obtaining any tax relief for expenditure on property.

If you would like further information on any of our articles feel free to contact us at the office.