Two headline measures were recently announced as part of the Chancellor’s Summer Statement, designed to stimulate growth in the retail sector and get people back into work in hospitality roles. VAT on food, accommodation and attractions has been cut to just 5%, to run from 15 July to 12 January 2021, whilst the Eat Out to Help Out scheme provides a 50% discount to restaurant diners on Monday to Wednesday throughout August 2020.
Rishi Sunak, Chancellor of the Exchequer, said that these measures have been brought in to protect jobs in the hospitality and tourism industries, which have been severely impacted by the coronavirus pandemic. As lockdown was rolled out across the country, up to 80% of hospitality businesses were forced to cease trading, and 1.4 million workers in hospitality have been furloughed.
The Chancellor said that he believes these two schemes will help more than 150,000 businesses to support more than 2.4 million staff, and aid business recovery across the entire hospitality sector.
What does the VAT cut mean for business?
Until 12 January 2021, the VAT rate for hospitality and tourism businesses has been cut from the usual 20% to just 5%. This means that businesses across these industries will have to pay considerably less tax to the government on sales of certain items. This has the dual benefit of allowing these businesses to make more money from their sales or, if they prefer, passing the discounts on to customers in order to encourage them to choose their business.
The government’s examples of how these prices may be lowered for customers include savings of £12.50 per night on a £100 per night hotel room, or a £2.12 saving on a £16.99 takeaway pizza.
Mr Sunak said: “This is a £4 billion catalyst for the hospitality and tourism sectors, benefiting over 150,000 businesses, and consumers everywhere – all helping to protect 2.4 million jobs.”
However, this VAT cut does not include alcoholic drinks, a move which some feel is unfair to bars and pubs.
What has VAT been cut on?
The reduced VAT rate has not been rolled out across all items and all businesses. It will apply on:
- Food and non-alcoholic drinks sold and eaten on-site in restaurants, cafés and pubs.
- Hot takeaway food and non-alcoholic drinks from restaurants, cafés and pubs.
- Hotels and other holiday sleeping accommodation such as caravans and tent pitch fees
- Admission to attractions such as theatres, zoos, amusement parks, cinemas and museums.
However, businesses are not obliged to pass on the VAT cut to customers. Whilst the Treasury says that the measure was designed to help encourage customers back into pubs, restaurants and attractions, it is still up to individual companies to decide whether they want to use this relief to boost their income instead.
What is eat out to help out?
Dubbed a “nationalised Tastecard” on social media, the Eat Out To Help Out discount scheme offers a 50% reduction for any sit-down meal in participating restaurants, pubs and cafés, every Monday to Wednesday during August 2020.
Talking about the scheme, Sunak said: “Meals eaten at any participating business, Monday to Wednesday, will be 50% off, up to a maximum discount of £10 per head for everyone, including children. Businesses will need to register, and can do so through a simple website, open next Monday.
“Each week in August, businesses can then claim the money back, with the funds in their bank account within five working days.”
To take part in the scheme, businesses need to register through this website. Registrations close on 31 August.
Are these measures enough?
Reaction to the announcement of these two measures has been positive, for the most part, but some experts have argued that the government hasn’t gone far enough to convince the general public to get back out into establishments.
Chief Executive of the trade group UKHospitality, Kate Nicholls said “The measures announced today are extremely positive and they should give many businesses in our sector much-needed help to get going again in earnest. We thank (Rishi Sunak) for recognising the importance and value of hospitality, and for acting so decisively.”
Ms Nicholls goes on to state that “We hope that the take-up will be just as widespread amongst consumers, as businesses have invested heavily to make their venues Covid-secure.”, echoing statements from other industry figures that they worry that the general public will still be reticent to go out, following months of instruction to stay home.
Meanwhile, members of parliament have also expressed doubts about the measures in Sunak’s mini-budget, with Shadow Chancellor Annaliese Dodds saying that “fear is hurting our economy”, with the public too worried about COVID-19 to relax in public settings.
She encouraged the government to instead work on their public health response, saying: “The best the government can do to boost demand is to give consumers and workers the confidence and psychological security that they can go out to work, to shop, and to socialise in safety.“So please, Chancellor, work with your colleagues so the public health response catches up with that operating in other countries.”
Ex-Labour leader Ed Miliband was also quick to point out that the voucher scheme was limited, tweeting: “Any help for hospitality welcome, including vouchers, but they will only be available for 13 days in August and that does not feel at all equal to the scale of the crisis in the sector.”
What’s next for the hospitality sector?
The fate of the industry in the short to medium term is heavily dependent on their ability to trade, which is inexorably linked to whether the Government reimposes quarantine measures, either on a local or national level.
Predicting this is nigh on impossible so all businesses are encouraged to take advantage of all government support if they have not already done so.
If you need assistance with this, then the friendly team at TFMC can help. In addition to offering the full range of accounting services, we can advise you on the loans and grants available to your business – offering suggestions on what is best for you and help and guidance throughout the application process.
Why not ring us on 0800 470 4820 to see what TFMC can do for you.