Temporary VAT Reduction for Tourism & Hospitality Sectors

The Chancellor’s summer economic update introduced a significant reduction in the UK VAT rate from 15 July 2020 to 12 January 2021. The changes will apply to the Tourism and Hospitality sectors, where it is hoped that a new 5% rate for ‘specific supplies’ will help to stimulate consumer spending as we enter the next phase of our recovery from the Covid-19 pandemic. The measures will cover the following:

  • Food and non-alcoholic drinks – The reduced (5%) rate of VAT will apply to the on-premises supplies of food and non-alcoholic drinks from pubs, restaurants, bars, cafés and similar premises across the UK.  The reduced rate will also apply to supplies of hot takeaway food and drinks. 
  • Accommodation and attractions – The reduced (5%) rate of VAT will apply to supplies of hotel and holiday accommodation (including caravan & camping fees) and admission fees to attractions such as theatres, theme parks, museums, amusement parks, cinemas, safari parks, zoos & similar cultural events and facilities across the UK (it does NOT apply to sporting events)

Taken together with the easing of some lockdown restrictions, and other initiatives such as the Eat Out to Help Out scheme, it’s clear that the hospitality and tourism industries are a focus of the government’s efforts to support businesses affected by forced closures and social distancing.

There are two potentially competing drivers for this VAT reduction.  As there is no legal requirement for businesses to reduce prices to reflect the lower tax rate, the ‘benefit’ of the reduction could be to leave more of the day’s takings in the hands of the business and support the business.  However, if businesses pass on the tax saving (as Nandos, Pret A Manger and Starbucks have said they will), hard-pressed consumers will feel the benefit and perhaps increase their spending.  

However, some businesses may not experience increased demand due to social distancing and may have limited ability to deliver on increases in demand if social distancing makes it difficult to take on additional staff or reinstate furloughed staff.  Until these constraints ease and more restrictions lift, it might be commercially difficult for businesses to cut the price they charge.

Never was the ‘In it Together’ mantra more pertinent – many businesses in the tourism and hospitality sector have been closed and without income for months.  They need the support of consumers.  But consumers need the encouragement of a price reduction to come out and trade with local businesses.  Some middle ground and understanding should see improved confidence for both as we work our way out of lockdown.


Alan Davis, Chairman & Head of VAT, MHA Henderson Loggie

Summer Economic Update 2020: Key Points

As Government support schemes are gradually withdrawn and businesses can start to fully assess the harm sustained by lockdown and what the ‘new normal’ will look like, now is a crucial time to get key guidance to help your business adjust to this new future and take advantage of any tax and financial opportunities.

This afternoon (8th July) Chancellor Rishi Sunak has unveiled a package to kickstart the UK economy’s recovery.

The Chancellor announced a VAT cut, stamp duty holiday, restaurant discounts and a suite of measures to boost hiring as part of his mini-Budget.

We have listed the full details below, but here is a brief overview of the key announcements:

  • A Jobs Retention Bonus, giving £1,000 to businesses who bring back employees from furlough
  • A “kickstart scheme” to get unemployed 16 to 24-year-olds into work
  • New payments for businesses hiring apprentices
  • A temporary VAT cut for hospitality and tourism – down from 20% to 5%
  • A rise in the threshold of stamp duty from £125,000 to £500,000 (England only)
  • An “Eat Out to Help Out” scheme for August, giving a discount to people eating at cafes, restaurants and pubs

Furlough Scheme

  • The furlough scheme will wind down flexibly and gradually until the end of October, Sunak confirms.
  • “Leaving the furlough scheme open forever gives people false hope that it will always be possible to return to the jobs they had before,” says the chancellor.
  • A jobs retention bonus will help to wind down the scheme: businesses will be paid £1,000 for every furloughed member of staff retained through to January 2021. This would cost the Treasury more than £9bn if every job furloughed is protected, Sunak says.

Kickstart Scheme

  • Mr Sunak unveiled a new £2bn Kickstart Scheme as a key plank of his “Plan for Jobs”. The fund will create government-subsidised jobs for unemployed young people and employers will be able to offer a six-month placement for people aged between 16-24.
  • The Treasury will cover 100% of the National Minimum Wage for each young employee for up to 25 hours a week with firms able to top up the worker’s pay.

Training & Jobs

  • Jobcentre work coach numbers will be doubled, the chancellor says.
  • Apprenticeships will be supported by bonuses for companies. Firms will get a payment of £2,000 for each apprentice they take on. Companies taking on apprentices aged over 25 will be given £1,500.

VAT Cut for Tourism & Hospitality

  • Sunak says 2 million people work in the hospitality sector and that it has been one of the hardest hit by Covid-19, warranting further support from the government.
  • VAT will be cut from the current rate of 20% to 5% for the next six months on food, accommodation and attractions. The cut lasts from Wednesday 15 July until 12 January 2021.
  • Sunak says the move is a £4bn catalyst, benefiting more than 150,000 businesses and consumers.

Green Investment

  • Sunak says the government wants a “green recovery with concern for our environment at its heart”.
  • As previously announced, the government will provide £3bn for decarbonising housing and public buildings.
  • Vouchers worth £5,000 per household, and up to £10,000 for those with a low income will be made available out of a £2bn pot to retrofit homes with insulation, helping to cut carbon emissions.
  • £1bn will be allocated to make public buildings greener.

Stamp Duty

  • The chancellor announces he will cut stamp duty to reinvigorate the housing market.
  • The threshold for stamp duty will increase from £125,000 to £500,000. The cut will be temporary, running until 31 March 2021, and will take effect immediately.

We will keep you updated on any Scottish announcements once they are made.


Discounts on Eating Out

  • The chancellor announces an “eat out to help out discount” to encourage consumers to spend at restaurants and cafes.
  • Meals eaten at any participating businesses, from Mondays to Wednesdays in August, will be 50% off up to a maximum discount of £10 per head for everyone, including children.
  • Businesses will be able to register through a website launching on Monday. Firms can claim money back to have money in their bank accounts within five working days.
  • Sunak says 1.8 million people work in the industry, whose jobs can be supported. “We can all eat out to help out,” he adds.

Implications of VAT Grouping

This article highlights the advantages, disadvantages, and practical implications of forming a VAT group.

Two or more companies or limited liability partnerships (“corporate bodies”) can register as a single taxable person for VAT if:

  • each has its principal/registered office in the UK, and
  • they are under common control.

The Implications of VAT Grouping

There are a number of implications of VAT Grouping, both advantages & disadvantages, along with some practical points which may be either advantages or disadvantages in the context of your operational setup. 


Advantages

  • The ‘Representative Member’ (a nominated ‘lead’ company) accounts for any tax due on supplies made by the group to third parties outside the group on a single VAT return. This can be helpful where accounting is centralised.  There may also be disadvantages to this – e.g. where accounts departments are disparate, filing deadlines may be more difficult to meet
  • The group is treated as a single taxable person and therefore it is not necessary to account for VAT on goods or services supplied between group members. This will be advantageous as it means there is no need for VAT on invoices for these supplies
  • Invoicing to Accounts Payable is potentially more straightforward, where suppliers can invoice the wrong company – as long as the companies are in the same VAT group, the VAT is recoverable and there is not the same need to ensure correct invoicing/addressing simply to ensure VAT is recovered through the correct VAT registration
  • Any poor compliance history of previous VAT registrations (and the VAT registration numbers themselves) will end with the closure of their individual VAT registrations – potentially ‘wiping the slate clean’

Disadvantages

  • VAT grouping brings joint & several liability for VAT due on the Group VAT return
  • The good compliance history of previous VAT registrations (and the VAT registration numbers themselves) will end with the closure of their individual VAT registrations
  • Any approvals or agreements reached with HMRC under the old VAT registration will strictly end, though it may be possible to carry those forward.  That may mean that any existing special partial exemption method would be lost – though that may also be regarded as an opportunity – to agree a more suitable method
  • Fixed financial limits in VAT regulations apply to each VAT registration number so aggregation to a group may not be helpful, for example;
    • For voluntary disclosures, the £10,000 limit for corrections to be disclosed on the next VAT return will cover a VAT group declaring more VAT – with more scope for error
    • The Payments on Account threshold of £2.3m net VAT per year will apply to the group as a whole and not the individual members
    • The partial exemption annual deminimis limit is £7,500 for a VAT group, so by aggregating, further £7,500 ‘allowances’ for individual companies are forgone, and
    • Default surcharges for late submission/payment may be calculated on larger sums, bringing more cost risk if net tax payable is high

Practical Considerations

  • A new VAT registration number will be required for the group. Although not necessarily a major issue, any stationery, letters and similar correspondence that carry the original VAT numbers would need to be amended to reflect the new VAT registration number.  It is, however, possible to give a single undertaking to HMRC to declare any VAT due under old registration number stationery under the new registration – useful to allow the exhaustion of existing stocks
  • The online process will be ‘driven’ from one seat – this would include submission and payment of a single aggregated VAT return but also the submission of any other data required by HMRC – e.g. Intrastat and EC Sales Lists
  • A new EORI number to deal with imports and exports will be required for a new VAT group
  • VAT inspections will only be required to one VAT number, but they may be more detailed as the returns will be more complex given the consolidated nature.  The larger the VAT grouped-business, the more likely that VAT assurance visits will be carried out by the Large Trader team in HMRC, potentially meaning a more systematic approach to assurance, and
  • There are detailed rules and anti-avoidance conditions where members are partly exempt or part-owned / managed by third parties.

Impact on VAT Cashflow

Where businesses currently have differing VAT periods, with a VAT group there will only be one period to consider.  This may affect VAT cash flows; if any businesses are currently in a typically VAT repayment position, by grouping these will be offset against others who may be regular VAT payers.  It may also be the case that inter-company charges create a positive cashflow benefit with the related VAT, so the overall impact of a single return for both/all companies should be considered fully ahead of any group application.  Depending on the size of the returns for each business this may still result in overall repayments for the group in each period and monthly group returns may be appropriate.


Next Steps

If you have any questions on VAT grouping, please discuss with your usual MHA Henderson Loggie contact or our VAT contacts noted below.

Alan Davis | VAT Partner & Chairman | alan.davis@hlca.co.uk

Allan Easton | VAT Consultant | allan.easton@hlca.co.uk

Scottish Budget 2020-21: Key Points

Scotland’s Minister for Public Finance and Digital Economy, Kate Forbes set out tax and spending plans for the coming year at Holyrood yesterday, following the resignation of Finance Secretary, Derek Mackay.

We have summarised the key points below.


Income Tax

  • The budget makes no changes to rates and does not introduce or remove any bands but the thresholds where the two upper rates kick in will not rise with inflation
  • The starter rate of 19% applies to the first £2,085 of income above the personal allowance
  • The Scottish basic rate of 20% will then be paid on the next £10,572 of income
  • An intermediate rate of 21% will then apply up to £43,430, with a higher rate of 41% and a top rate of 46% for those earning more than £150,000

Land and Buildings Transaction Tax (LBTT)

  • Land and Buildings Transaction Tax (LBTT) for residential property will be unchanged
  • There will be a new 2% band for non‑residential leases, applying to transactions where the net present value (NPV) of rental income over the period of the lease is above £2m

NHS and Social Care

  • Investment in health and care services will increase by more than £1bn
  • Frontline services funding for NHS boards will increase by £333m, with a further £121m increase for improving patient outcomes
  • There will be an investment of £117 million in mental health for all ages and stages of life
  • Additional support for social care goes up from £120m to £220m
  • The total Scottish health portfolio budget will be just over £15bn for the first time

Environment and Climate Change

  • There will be £1.8bn of investment in low emission infrastructure, including a package of over £500m of investment specifically designed to increase efforts to respond to the global climate emergency;
  • A total of £461.8m will be spent on the environment, climate change and land reform – an increase from £426.6m
  • Marine priorities include to safeguard and monitor marine and fisheries activity in Scotland’s seas, coasts, rivers and ports – with spending increasing to £65.5m

Childcare and Education

  • The budget will invest around £645m in the expansion of early learning and childcare
  • There will be funding to establish the ‘game‑changing’ Scottish Child Payment which, when fully rolled out in 2022, will help an estimated 30,000 children out of poverty
  • There will be an investment of more than £180 million in raising attainment in schools, including £120m delivered to headteachers to spend on closing the attainment gap

Business and Economy

  • The Scottish National Investment Bank to be operational in 2020, supported by the £150m Building Scotland Fund and a further £220m indirect investment in 2020-21
  • Research and development spending will continue to increase towards the 2025 target of £1.7bn, doubling spending over a 10-year period

Communities and Local Government

  • The Affordable Housing Supply Programme spending will increase to £843m
  • Spending on measures to reduce fuel poverty and improve energy efficiency will increase from £119.6m to £137.1m
  • The Scottish Child Payment which will be introduced paying £10 per week, per child every four weeks to eligible families with children under six

Transport, Infrastructure and Connectivity

  • Spending on rail services will go up from £989m to £1,259.1m
  • Investment in concessionary fares and bus services will be increased by £16m, taking the total investment in 2020‑21 to nearly £290m
  • Motorways and trunk road spending will fall from £833.1m to £748.9m
  • There will be an increased investment of £5.5 million in active travel

Justice

  • There will be an increase in the police budget from £1,180.1m to £1,222.3m
  • Spending on the fire service will increase from £327.2m to £333.3m
  • There will also be £6.5m of additional investment in support for community justice, to reduce re-offending

Please note that these proposals are due before Parliament in March 2020 for a vote. If an agreement cannot be reached these proposals may change.

If you have any queries, please speak with your MHA Henderson Loggie contact or email info@hlca.co.uk


Get in touch

Tax Newsletter | December 2019

Merry Christmas from our tax team


Here are some important areas of tax for you to consider and some of the changes that will be coming in 2020…



Scottish Income Tax

In 2018/19 the rates of tax differed in Scotland for the first time since The Scottish Rate of Income Tax (SRIT) came into force from 6 April 2016.  While the tax bands were already different from those for the rest of the UK, 2018/19 was the first year in which the rates were altered.  This means those on the lowest incomes pay slightly less in Scotland while most on higher incomes pay more in Scotland. 


What income does the SRIT affect?

The SRIT only affects non-savings income which includes employment, pensions, self-employment and property income.  All savings and investment income remain taxable at the rates and tax bands set by the UK Government and is expected to remain so for the foreseeable future.


2019/20

In 2019/20 the rates in Scotland are:

Starter rate 19%                                                           £0 – £2049

Basic rate 20%                                                             £2,049 – £12,433

Intermediate rate 21%                                                £12,433 – £30,930

Higher rate 41%                                                           £30,930 – £150,000

Additional rate 46%                                                    £150,000 +


The personal allowance along with the other allowance such as savings and dividends are set by the UK Government and apply to Scottish taxpayers on the same basis as all UK taxpayers. 


2020/21

Due to the December 2019 election and the announcement from Scottish Finance minister Derek Mackay that he will only announce the Scottish budget after the UK budget.  The UK budget is due in the first hundred days from 13 December so could be as late at March 2020 which means for the Scottish budget to be later, the Scottish parliament will then have to pass a budget before the start of the new tax year on 6 April 2020.


How to define a Scottish taxpayer?

If you live full time in Scotland you will be a Scottish taxpayer.  If you split your time between Scotland and elsewhere in the UK you need to look closely at the definition of a Scottish taxpayer.  Contrary to speculation, this is not based on the number of days in Scotland.  It is based on a number of factors in which the number of days can play a part.  The main deciding factor is where your home is.   The home or main residence is determined by where your family is based, where your main ties are such as your doctor, dentist and any other indicators that show a property is your home.  This catches those living in Scotland and working in London.


Tax planning

Where individuals have the ability to choose how they take income, such as those with their own company who can choose between salaries and dividends, there is careful planning that can be done. If an individual has more than one home throughout the UK it is important to consider the position personally to ensure you are taxed on the correct rates. Gift aid & pension contributions still receive relief based on the UK rates at 20%.


What should you do next?

If after reading this you think you may be a Scottish taxpayer or you are a Scottish taxpayer and would like to know more about how this affects you personally, please get in touch with Barbara McQuillan (bam@hlca.co.uk) or Lucy Crow (luc@hlca.co.uk).



Conservative Government Corporation Tax Consequences


The Conservative party winning the election by the largest margin since the 1980s, clarifies the United Kingdom’s corporation tax plans going forward.


Rate of Corporation Tax

The party’s U-turn will see the rate of corporation tax maintained at 19%, instead of the previously indicated decrease to 17%. The party states that this will give the Government an extra c£6bn a year more revenue than it would have with the reduced 17% rate.


Research and Development (R&D) tax credit

The Conservative party have stated that they will increase the R&D tax credit rate from 12% to 13%. This is a relief available to large companies. The definition of a large company depends on three criteria: headcount, turnover and gross assets. If your company employs 500 staff or more and have either turnover of more than €100m or €86m in gross assets them you will fall into the scheme.



Making Tax Digital


Making Tax Digital is already in place for VAT but not yet for income tax.  It was scheduled to come in from April 2020 but is now pushed back to 2021 at the earliest.  While it has been pushed back it is still expected to be implemented in the future.  We have been helping our clients navigate the new digital VAT service and we are currently working with software providers and updating our website to ensure we and our clients are ready when Making Tax Digital arrives for income tax.



Get in touch


To discuss any of the issues highlighted within this newsletter, or any other matter you require our help with, please contact us by using the form below

VAT on new house building: Are there any special rules that apply?



Are you a new house builder and are unsure about the rules & restrictions for VAT?

In this short video Alan Davis, VAT Partner here at MHA Henderson Loggie, shares some insight into the Value Added Tax rules for new house builders.

Covered in this video:

✅ Common misconceptions about VAT for new house builders
✅ What are the VAT restrictions?

If you have any questions about VAT for new house builders, please contact Alan directly at alan.davis@hlca.co.uk


Edited video transcript


VAT for new house builders

Generally speaking, when I’m advising builders who make new houses, they’re typically aware that there are VAT restrictions on input tax on the costs of building those new builds, but I find very often that the people who are dealing with these points quite often change. You’ll have somebody who’s changed jobs, and the next person will either not be aware that there are restrictions or will forget over time. One of the things I do when I’m talking to them is ensure that they’ve got good systems in place to ensure that everyone’s aware of the implications of VAT and new house building.


Common misconceptions

It’s a common misconception that VAT becomes part of the financial annual audit and that accountants are looking at the treatment of VAT as part of their audit. Historically, I would have thought that was the case as well when I was in HMRC, and that’s not the case. It’s a common misconception. It’s really down to you to focus on VAT and know the rules about what you can recover VAT on and what you can’t. The information in this video is quite general, and so we would always recommend that you take specific professional advice of your own to ensure that you get the VAT position correct.


What are the rules applying to house building?

Well, the main one is the treatment of white goods. You’re restricted from recovering VAT on things like refrigerators, washing machines, dishwashers, and so on. In addition, the treatment of flooring is quite important. You’re not entitled to recover VAT on carpets, but if you lay down a hardwood floor, that VAT is recoverable. Similarly, most new house builders have sales and incentive schemes, for example, part exchange and the extra furnishings, curtains and so on. Each of those have VAT implications and specific VAT treatment. You’d really need to keep an eye on those.


Any questions about VAT for new house builders?

If you’re involved in the construction of new houses or the VAT treatment of the costs of doing so, or if you’ve got questions or comments, please feel free to contact Alan directly at alan.davis@hlca.co.uk

The information is this video is of a general nature and seeks to highlight some of the issues which could be affecting you and/or your business, including changes to financial regulation and legislation. Viewers should not rely on this information without seeking professional advice on its application in their circumstances.

VAT – Domestic Reverse Charge

In order to tackle VAT fraud in the construction industry HMRC will introduce a domestic reverse charge with effect from 1 October 2019. This means a person supplying certain construction industry services to a VAT-registered customer will no longer be required to account for VAT.  (The change will only apply if VAT at 20% or 5% applies to the works carried out, not zero-rated works).  Instead the business customer will account for VAT under the Construction Services Domestic Reverse Charge (“CSDRC”) or “reverse charge” arrangement. The new rules will cover construction services reported under the CIS and associated materials supplied as part of the contract (but not architects or surveyor services or similar).  This will include:

  • construction work to permanent or temporary buildings or structures and civil engineering work (e.g. roads or bridges):
  • Groundworks and other preparatory works
  • Demolition
  • Construction, alteration and repair
  • Installation of systems for heat, light, power, water and ventilation
  • Painting and decorating

The impact on the construction industry is potentially significant, not only in terms of cash flow, but construction firms will also have to make changes to their systems to account for the reverse charge and put in processes to monitor the supplies. In addition, the new rules will mean that the customer will be responsible for the correct treatment of VAT and they will also be required to identify if they are the end user of the supply chain, information which could be commercially sensitive. There is no change for supplies to end-users / consumers, who will continue to be charged VAT in the normal way.

In advance of 1 October 2019, construction firms need to consider the following:

  • the potential impact on cash flow from not charging or receiving VAT payment
  • changes that need to be made to accounting and invoicing systems to identify and take account of reverse charging and the ongoing monitoring of payments
  • potential interaction with self billing
  • customer status, to determine where reverse charges will be required to be made post October 2019
  • Staff training
  • Whether contracts need to be amended, particularly standard contracts

The government has estimated that between 100,000 and 150,000 companies will be affected by the new rules which have been introduced as part of their mission to clamp down on ‘missing trader fraud’. Although the number of criminals carrying out this kind of scam in construction is low, they are believed to be making a significant amount of money and unfortunately the whole of the construction industry will now have to pay the price.

As with all new rules, it’s important to plan as early as possible for the change over, as cash flow for some businesses in particular is likely to be significantly impacted by this change.

Alan Davis, VAT Partner & Chairman, MHA Henderson Loggie

Alan Davis

Alan is Chairman of Henderson Loggie, he is also Head of Tax for the Firm and leads our award winning VAT team. He covers all four offices providing specialist advice on technical VAT compliance and advisory, training and development.

Having spent 16 years with HM Revenue & Customs carrying out VAT assurance visits for a wide range of businesses – from small retailers to local authorities, Alan has gained considerable experience of HM Revenue & Customs inspections. He can help with planning opportunities for VAT efficiency, and can advise our clients on retrospective reclaim opportunities, securing significant VAT repayments.

Alan can also advise on other indirect taxes e.g. landfill tax, aggregates levy, climate change levy, and also offers in-house technical updates to the legal profession.

In addition to his tax specialism, Alan leads our Education Sector Group, ensuring that that team meets all the needs of the sector – from audit, to advisory and across all the services the firm provides.

Barbara McQuillan

Barbara has worked in taxation and specialised in the owner-managed business sector for over 30 years. During that time she has dealt with a wide range of clients in a variety of sectors ranging from the initial establishment of new businesses, through the growth years and then to retirement or sale. Throughout the life cycle of any business, a great variety of tax challenges arise and Barbara has provided pro-active and practical tax advice at every stage.

Barbara is a member of the firm’s Life Sciences Sector Group and with the team provide a wide range of skills and experience to service an important and substantial sector in the Scottish economy. Barbara is involved in running Corporate and Tax Clinics for one of our major Universities, assisting early-stage companies.

Barbara was for a number of years a Director of MHA Henderson Loggie Financial Planning.

Barbara Walton

Barbara is a corporate tax specialist with over 20 years of experience of advising clients on domestic and international tax, R&D and entrepreneurial tax issues and leads the firm’s R&D and Patent Box group.

She is experienced in corporation tax compliance for private and publicly listed companies, and tax planning for large groups of companies. Her industry experience includes technology, biotechnology and pharmaceuticals, software development, manufacturing and the food industry. Barbara is a member of the firm’s Healthcare and Life Science Sector teams.