Hospitality will benefit from alcohol duty being frozen, 5% VAT for the next six months, an extension of furlough and additional grant schemes following today’s budget.
The UK Government Chancellor Rishi Sunak has announced that a £5 billion grant scheme will be available to hospitality firms across the UK, with businesses being able to access payments up to £18,000.
The “restart” grants will be available on a per premises basis and will be allocated based on the value of the property.
Those properties with a rateable value of £15,000 or under will receive £8,000, those valued between £15,000 and £51,000 will be entitled to £12,000, and those valued above £51,000 plus will get £18,000.
While the main £5bn is aimed at England, Scotland, Wales and Northern Ireland will receive £794 million in funding through the Barnett formula. This is on top of the £20bn already paid out.
VAT reduction
The reduction of hospitality VAT was addressed, ensuring VAT which would usually be charged at 20%, stays at the reduced rate of 5% for an additional six months until September 30.
This move will further help assist Scottish hospitality businesses through the coronavirus pandemic over the coming months.
An interim rate at 12.5% will be introduced after September 30 and will run for another six months until April 2022 when the standard rate of 20% will return. This will cut VAT by £5bn in 2021.
The VAT only affects those offering hot food takeaway at present, until businesses begin to reopen. VAT on cold food is zero-rated.
With First Minister Nicola Sturgeon announcing last month that hospitality was unlikely to reopen before April 26 in Scotland, this will be welcome news for businesses who were worried and left facing financial turmoil.
Alcohol duty and furlough
The Chancellor also announced in his address to Parliament that alcohol duty on beer, cider, spirits and wine will be frozen for the second year in a row to help boost pub and restaurant sales when these venues finally reopen.
He also confirmed an extension to the furlough scheme until the end of September.
No changes will be made to the scheme until businesses reopen. In July a small contribution of 10% will be necessary from employers and 20% in August and September. It is not certain whether this will affect hospitality Scottish businesses due to the sector not having firm reopening dates.
‘Encouraging for the country’
Scott Murray, managing director of hospitality group Cru Holdings in Inverness which boasts a portfolio of seven hospitality and food and drink firms, is looking to the positives in the Chancellor’s announcement.
He said: “Overall I found Mr Sunak’s budget announcement encouraging, not just for the hospitality sector, but for the country as a whole. It was refreshing to hear from someone who really had seemed to take account of all the angles, and all sectors of business with the tax rates weighted towards those who could afford it most, with support given to those who will benefit the most.
“In terms of job support, the extension of furlough was expected, but welcomed nevertheless, and really gives us a lot of comfort in restarting our businesses and our sector once restrictions allow.
“The additional grants (although it remains to be clarified exactly how these will be made up) will certainly be welcomed in terms of helping us to continue to make adjustments to our businesses to ensure our customers remain confident and safe, and the tiered VAT increase once again allow us to ‘ramp up’ our businesses growth as we enter a new period of uncertainty.
“The lack of alcohol duty increase will be welcomed by thousands of our customers too, and I feel really does help to underline the genuine desire to kickstart the economy.”
Hidden costs
In Stonehaven, Aberdeenshire, Robert Lindsay, owner of beer firm and beer bars six°north, and The Marine Hotel, was disheartened by the news.
With Scottish hospitality closed for now and the furlough scheme also putting pressure on business owners, Robert, who has bars in Aberdeen, Glasgow, Dundee and Edinburgh says it is hidden costs like pension and national insurance that seem to be forgotten.
He added: “The employer will start to pay and if we’re not open by the Scottish Government then that will obviously cause us issues. The furlough scheme is national and without the individual businesses being allowed to trade then staff will continue to be on furlough.
“The 20% that employers will have to pay by August/September, what is missed is the National Insurance and pension schemes that we also contribute to so employers will be contributing over 30% by that point for a business which will be operating on a reduced capacity more than likely.
“Alcohol duty is a huge portion of the price of beer from a brewer and a bars’ perspective. It would have been good if that could have been reduced, but unfortunately they can’t be seen to be going against the health lobby, which doesn’t help a huge part of the UK’s economy.
“The 5% VAT is only on food sales and if you are a wet-led pub then, tough luck. It is 12.5% until April after the next six months. Bars and restaurants have been squeezed and there were calls for VAT reductions before the pandemic.
“The consumer doesn’t understand that the business doesn’t pay VAT on food purchases, but we’re collecting VAT from the customer and passing it on. The actual sale price you see on your bill is not the price the business gets as they just have to give 20% of that to the government. It appears it will just go back to normal come April 2022.
“Unfortunately breweries haven’t been eligible for rates relief as they’ve been seen as potentially being able to operate. There has been one recent grant funding been given from the Scottish Government, which, whilst is helpful, it wouldn’t cover your rent of a property for the year never mind your rates. Breweries have been operating in an environment where most of their customers have been closed but without assistance, albeit furlough when staff were furloughed.
“However, saying that, without the UK and Scottish governments assistance none of us would be here.”
Further extension of VAT
Stephen Gow, general manager of The Chester Hotel in Aberdeen, says while the extension of the VAT reduction to 5% is a positive thing for the industry, an extension until the end of the year would have benefited the businesses more.
He said: “Any form of support for the hospitality industry and the individuals employed across such a diverse sector has to be welcomed.
“The continuation of the VAT reduction to 5% for six months to the end of September is a welcome measure and the proposed staged increase of VAT will be of assistance. An extension of the 5% until at least the end of the year would have given businesses a more stable platform from which to plan operational and financial recovery.
“The hospitality sector has been one of the hardest hit throughout the course of the pandemic and it faces a long journey back to pre-pandemic days.
“Extended furlough will allow us, as business returns, to phase the return of our team to the business to meet its needs which will be helpful.
“It’s good to see the chancellor acknowledging that the hospitality sector has been badly hit and will reopen with more restrictions and we await details on the new ‘Restart’ grants for English hospitality businesses which the chancellor has said will be up to£18k. Scottish businesses need this to be echoed in Scotland.”
Need to be open to benefit
David Littlewood, executive chef and owner of The Kildrummy Inn in Alford and The Tor Na Coille in Banchory, is glad furlough has been extended for a longer period than the anticipated three months it was predicted to be.
“It’s reassuring that furlough is being extended, and that the extension is for a longer period than initially predicted. The VAT reduction period extension is also welcome as is the news that there will be a phased increase back to the 20% level,” said David.
“However, the VAT reduction is only supportive for business when they are actually generating revenue; no hospitality business will benefit immediately from this whilst we remain closed.
“Furlough will definitely be of benefit as hospitality businesses reopen, giving us the opportunity to assess how we will be trading in the coming months.
“We should also remember that we still have no idea what reopening will look like; whether there will be new restrictions, new regulations, different opening hours, with alcohol, without alcohol.
“’Pivoting’ a business is exhausting and we need to know now how and when we can open so we can fully appreciate the Chancellor’s measures announced today.”
Promising
Stuart McPhee, spokesperson for hospitality body Aberdeen Hospitality Together and director of Siberia Bar & Hotel, said overall, the outcome of today’s budget announcement was relatively positive for hospitality firms up and down the country.
Stuart McPhee, director of Siberia Bar and Hotel.He said: “I would broadly welcome all of the announcements we have heard from the Chancellor. It is important to see further detail into some of the newer schemes which have been announced whether that’s the super deduction scheme or the change in corporation tax to have a new small profit rate for different sizes of companies. I’m sure that will be very welcome.
“Furlough being extended means we have a safety net for our staff for a long period of time. Most businesses will be hoping to be operating in some capacity come July to allow them to contribute that extra bit. It does give us more realistic timeframes and know that the support is there to help with that.
It was great to see that VAT extension of 5% on food for hospitality businesses for the next six months, and then a tapering of that into stimulating recovery. On the round I think there’s a lot of good news in there. I’d like to see a little more detail and hopefully this running in parallel to an effective roadmap out of the pandemic can get up back to some sort of stable trading for businesses across the city and we can recover and take advantage of the packages that have been put together to stimulate recovery up and down the country.”
Marc Crothall, chief executive of the Scottish Tourism Alliance (STA), added: “The extension of furlough until the end of September will be welcomed by businesses across the sector and relief will be felt by the many thousands of employees on furlough, given that Scotland’s tourism industry may not open fully until the summer months. However, furlough still comes at a cost to business and it will take some time for many businesses to start to trade viably again and meet the most basic costs.
“I’ve spoken to a number of sectoral associations over the past week who have told me that businesses simply don’t have the cash reserves to get them beyond Easter; it’s therefore crucial that a robust and tapered financial support package is delivered quickly to the businesses who need it the most in addition to the packages of support announced today.
“The STA has campaigned relentlessly along with UK Hospitality and other national tourism bodies for a long term reduction in VAT and today’s announcement that the reduced 5% rate of VAT will be extended until the end of September to 12.5% for a further six months is good news. The industry had hoped that the 5% rate would have been extended well into 2022 to allow businesses more time to recover and have the breathing space needed to meet the substantial costs of loan repayments and other significant costs which are looming on the horizon; we will continue to make the case for VAT not returning to 20% beyond March next year to stay competitive as a destination.
“Overall, it’s a supportive budget but it is absolutely vital that businesses who have been hardest hit and will be last to open are given a realistic and supportive timescale to enable sustainable recovery for the sector.”