The issue is certainly topical as HMRC are investigating such models under rules IR 35 for the next tax year, which commenced on Tuesday 6 April.
The model, pioneered by Marston’s but now adopted by all the major ‘big six’ companies, involves self-employed managers receiving anything from 15-30% of the net take from which all staffing costs are paid.
It is contentious and I have mixed views.
You don’t lose your life savings by taking a pub via this model, as opposed to a tenancy where some rents are still based on volumes last achieved when Duran Duran were top of the charts.
Where the takings are high, in excess of £10,000 net per week for example, remuneration is good. It suits ‘personality publicans’ who are strong on service though weak in financial management, and you get a warm bed for free every night.
However, where the takings are low, you can be working for an hourly rate less than minimum wage, there is no holiday pay, no sick pay, no pension entitlement and no National Insurance payments.
Yet, you still get a warm bed for free every night even if you can be turned out of it by just four weeks notice with no need for any justification – that 28-day period is in one of the ‘big six’ agreements.
There are even cases of publicans with five years’ service given one weeks’ notice to leave – no rights whatsoever.
The look of an ‘employee’ relationship
Is it really a self-employed relationship? I recently asked a local ‘percentage of take’ publican:
1) Who sets the hours the pub opens? Answer: The business development manager (BDM)
2) Who sets the prices? Answer: The BDM
3) Who decides the products you sell? Answer: The BDM
4) Who determines the food offer? Answer: We are given a menu to follow.
5) Who provides all the catering equipment, tills, even toilet rolls? Answer: the pub company.
That looks like an ‘employee’ relationship to me, but the ‘big six’ insist it is not.
Except they then shoot themselves in the foot.
Two major players Ei Group (Stonegate) and Heineken's pub arm Star Pubs & Bars have both used the Landlord and Tenant Act Section 25 to remove sitting licensees and take the pubs back “for their own occupation” to be run as managed houses under Craft Union and Just Add Talent banners – all with leased and tenanted compensation less the dreaded dilapidations.
So, if HMRC asks whether it’s a managed house the answer is ‘no’, but if a judge in a court of law asks the same question, then it is
Will pubcos give managers basic rights?
So, two of the ‘big six’ make the case against themselves.
When I highlight this to pubco execs it produces a shaking of heads more suited to a Def Leppard concert.
What I really don’t like about the model is that after investing often upwards of £100,000 in a site to provide the best pub in the area, they then typically slash the prices often undermining nearby tenants of the very same company.
In one pub in my native South Yorkshire, I popped in to witness a £1.75 per pint offer, which even undercut the local Wetherspoons.
What is offensive is the abuse the previous tenant often receives from their former customers about the new prices and the ones they were forced to charge.
So, will pubcos give their managers basic rights? Will they contribute the right taxes to Britain’s recovering post-pandemic economy? Is Piers Morgan on Meghan Markle’s Christmas card list?
Some will attempt to get round the IR 35 regs by forcing all the individuals to become limited companies and, in a minority of cases where they have more than one pub with different companies, they will in my opinion probably be compliant.
However, when the limited company has all its income from just one provider, I somehow suspect HMRC will be less than sympathetic.