Restaurants now at greater insolvency risk than pubs, expert analysis finds
New analysis of industry data from Market IQ, by leading accountancy firm Price Bailey shows that 14% of UK restaurants now have negative net assets on their balance sheets and fall into the maximum Delphi risk category. This renders them technically insolvent and places them at imminent risk of failure or severe financial distress within the next 12 months.
By comparison, 13% of pubs and bars are classified in the same highest-risk category.
The analysis comes as Burnham proposes a 20% reduction in Business Rates for pubs, clubs and qualifying live music venues. Despite continuing to contend with rising wage costs, higher employer National Insurance contributions, food inflation and ongoing pressure on consumer spending, restaurants are excluded from the relief.
Commenting on the data, Emma Benjamin, Partner and Hospitality sector specialist at Price Bailey, says: “The rate reduction for pubs, clubs and qualifying live music venues is a welcome boost for a struggling sector. However, our analysis suggests that restaurants are, if anything, in a marginally more precarious position. Despite this, they have been excluded from the Government’s latest business rates relief, raising questions about whether the support is reaching the businesses facing the greatest financial pressure.”
According to Price Bailey, the number of restaurants falling into the highest-risk category has increased by 18% over the past 12 months. Over the same period, the number of pubs and bars in the highest-risk category increased by a slightly lower rate of 16%.
Benjamin continues: “There’s been a lot of focus on the difficulties facing British pubs, but it’s important that the Government does not overlook British restaurants. Vibrant town and city centres rely on a diverse hospitality sector. Supporting one part of the industry while excluding another risks creating an uneven playing field at a time when operators across the sector are working hard to rebuild profitability.
Benjamin also notes that she has observed growing discussion around whether restaurants that host live music events could qualify for the new relief. Commenting on this, she says: “Until the Government publishes further detail, it remains unclear whether this would be enough to bring them within scope. However, that uncertainty may lead some restaurant owners to consider introducing more live music events while they await clarity.
“It’s also important that business owners review the wider tax opportunities available to them, particularly restaurant owners. We’ve seen hospitality businesses recover substantial sums simply by reviewing historic capital expenditure, claiming capital allowances correctly and ensuring that every available relief has been considered.
“Whether or not a business qualifies for the new business rates reduction, now is an ideal time to review its overall tax position and seek advice to ensure it is making full use of every tax relief available.”
Hospitality businesses looking to review their tax position or better understand the reliefs available to them can speak to Price Bailey’s hospitality specialists for further advice.
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