The Summer Statement – rolling update

Rishi Sunak announced phase two “Protect, support, create” of his three-phased economic recovery strategy which centred around helping businesses bring people back to work, investing in young people and encouraging people to go back out and spend.

Our experts at Price Bailey have analysed the announcements and offer their thoughts and opinions on their effectiveness and the direct and indirect impacts these measures might have on businesses. This is a rolling updated and will be continually reviewed as more information becomes available and our analysis changes.

Last updated in the afternoon of 8 July 2020.

From the expected VAT cuts to innovative solutions such as the “Eat out to help out” discount vouchers the Chancellor’s Summer Statement gave our experts much to think about when he delivered it on Wednesday.

It was clear that Rishi Sunak had certain sectors in mind, chiefly the housing sector and hospitality and tourism, when he designed these packages, but there were several measures announced today that were designed to help all businesses bring people back off furlough and create new jobs. Many of his announcements will be welcomed by business leaders, but what are the impacts of these and what can we expect as a result?

In video: A review of the Chancellor’s Summer Statement

Chand Chudasama, Strategic Corporate Finance Partner and Richard Grimster, Head of Tax at Price Bailey review some of the main points from the Chancellor’s Summer Statement.

 

VAT reduction for the hospitality and tourism sector

The government has announced that the VAT rate in the hospitality and tourism sector will be reduced from 20% to 5% this will be effective from 15 July 2020 until 12 January 2021. This reduction in VAT rate will only apply to food, accommodation and attractions.

In practice, this means businesses in this sector will need to ensure all their systems and invoicing are revised to ensure the change in VAT rate is automatically applied to sales, and is carried through to the VAT return. Furthermore, affected businesses need to consider whether to reduce their prices to pass on the benefit to the customers or retain the additional 15%. 

Despite the above, consideration will need to be given if a business has both other business customers as well as private individual customers whereby a VAT invoice might be requested.

The time of supply, i.e., the date on which the new VAT rate applies, will also need to be considered, especially in relation to accommodation, for example VAT on deposits and cancellation charges will need to be accounted for on the date of payment, so the VAT rate will depend on the date the customer pays. There is likely to be further complication around stays of longer than 28 days and how the reduced VAT value will be calculated. Purchases can also be affected if a “purchase order” system is in place as the client may end up paying more VAT then necessary on expenses.

Price Bailey expect this to be of benefit to many of our clients. If you are looking to understand how the change in VAT rate will impact your business, then please reach out to your normal Price Bailey contact, Daphne Hemingway or Kate Morgan from the Tax team on the form below.

Job Retention Scheme return to work bonus

The government will introduce a one-off payment of £1,000 to UK employers for every furloughed employee who remains continuously employed through to the end of January 2021. Employees must earn above the Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021. Payments will be made from February 2021. Further detail about the scheme will be announced by the end of July.

Some of the other measures announced yesterday as part of the “Plan for Jobs 2020” are very much welcomed, such as the Kick Start scheme. There should be some great opportunities for creating jobs and for businesses to benefit from this. While the JRBS is welcome the Chancellor has said that he accepts that there will be cases where this is simply a dead weight cost to the furlough scheme; some employers will just pocket the £1,000 incentive when they are already planning to keep employees beyond January 2021. Is it fair to treat all sectors the same? Could it have been better targeted at those sectors most at risk of high unemployment, removing it from some of the financially stronger sectors and increasing the size of the incentive in say hospitality and aviation? I don’t think it’s a strong enough incentive for some employers to retain their employees and therefore not sufficient on an individual basis to convince employers making redundancies to change course. It will however create an incentive to retain a furloughed employee over one who has never been furloughed.

If you have any questions on the Job Retention Scheme contact Stuart Curtis on the form below.

Temporary reduction in Stamp Duty Land Tax 

The Government intends for the Stamp Duty Land Tax (SDLT) cuts to provide certainty and an incentive for the property market to be encouraged out of dramatic fall in activity and pre-empt a picking up which would happen naturally later. If you like, it’s a prompt for acceleration; the cost of which is born by the Treasury. The way this is administered is to increase the lower threshold for residential property from £125,000 to £500,000 which is a 0% rate until March 2021. As SDLT is taxed on a segmented basis this means that the vast majority of residential property purchased before 31 March 2021 will be free from SDLT.

The Chancellor made clear that every buyer will benefit. What this means is that the benefit is not limited to first time buyers (which had been speculated) and even a buyer of a £10m property can get the benefit worth nearly £4,000. This is therefore intended to help all housebuilders , not just builders building housing up to £500,000.

Crucially, the measure:

  • Will not relate to non-residential properties purchased.
  • Will not be very effective for first time buyers who already have a similar rate of relief from SDLT
  • Benefits landlords and home-owners equally albeit the former will continue to have the additional 3% on each segment including this 0% band

This should benefit non-resident investors despite there currently being a consultation out as to whether a higher (penalty) rate could apply to those purchasers.

If you have any questions on how this might affect you please contact Jay Sanghrajka on the form below.

 

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

 

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