A view from the Fens
On July 15th, The UK Government slashed VAT on food and non-alcoholic drinks to help the Hospitality sector to try to kick start the economy and give struggling businesses a boost.
Small and local pubs, takeaways, restaurants and attractions were able to charge less tax with value added tax being dropped from 20% to 5% for six months.
This cut applies not only to food and non-alcoholic drinks but to accommodation and admission to attractions across the UK, such as zoos and cinemas as well.
Chancellor Rishi Sunak said the move was to “get the sectors moving and to protect jobs”. VAT does not apply on supermarket food, newspapers and magazines. Where it does apply, the tax will be included on the price tag. The Chancellor said the tax cut will apply to eat-in or hot takeaway food from restaurants, cafés and pubs, accommodation in hotels, B&Bs, campsites and caravan sites, as well as cinemas, theme parks and zoos. Alcohol is excluded from the VAT cut.
In 2008, following the financial crash, the Government introduced a 12-month temporary cut on the rate of VAT to 15%. The aim of this cut is to boost consumer spending with retailers expected back then to pass the reduction on to customers. Sunak’s six-month cut for hospitality and tourism is set to cost the government £4.1billion, but the idea is that it will support businesses from collapse, therefore saving the economy and the Government cash in the long term.
This time around, it will apply to the hospitality and tourism sectors - meaning hotels, days out and food and non-alcoholic drink should be cheaper according to the government.
Daniel Lyons, the head of tax policy at accountants Deloitte, said: “The rate change could mean a range of savings for consumers. For a pub meal costing £45 without alcohol, a couple could expect to save £5.62, while a £54.50 one-night stay at a hotel in a family room would see a saving of £6.81. “A family ticket to a theme park or zoo costing £144 could see a saving of nearly £18.”
The VAT rate will be slashed for the hospitality and tourism industries in order to help them bounce back from the coronavirus crisis. The Treasury said the VAT reduction is expected to save households around £160 a year on average.
But these savings will only apply if merchants agree to pass the cut on.
Traditionally there has been nothing in place to force a business to cut its prices in line with any VAT cut, and some companies may be tempted to pocket the difference themselves.
Whilst this move by the Government is welcomed at a time of real uncertainty, it has left most operators in the hot food retail sector in no doubt whatsoever that the decision makers have no real understanding of what its like to be in business in 2020. The idea that a 75% relief in the VAT rate for operators to pass on to consumers if they wish was ever going to happen is almost as fairy tale as giving £10,000 to business owners up front and cheap loans to get back to trading.
Polls carried out on closed group social media sites tell the real story. More than 90% of small hot food retail outlets are simply going to pocket the 15% cut in VAT. Many are just grateful as the trading climate has been incredibly tough before Covid 19 with raw materials and competition both increasing. Others are already starting to realise that in January when the VAT returns to 20%, it’s going to be an incredibly difficult and challenging time.
One concerned operator told Fast Food Professional magazine, “I feel as though all these measures have helped but this is a financial piece of elastic that’s keeping me in business and at some point it’s going to snap back. Governments are just like banks - they give you an umbrella when it’s sunny and take it away when it rains. I’m sure they’re just buying votes because their policies solve problems today but create bigger problems for tomorrow. You can’t take next weeks sunshine now and then moan because it pours down with rain for 7 days. Come January, there will be high unemployment, no customers about and a shrinking economy. Suddenly my cash flow is going to be choked as I have to set aside 20% instead of 5% for HMRC again. My worry is they may push it even higher going forward.”
Others don’t agree with this stance on the current situation and believe that the Government are doing a great job and a third opinion is they just don’t know and can’t predict what is likely to happen.
With Travel restrictions tightening and localised lock downs threatening, it’s seems that the hot food retail landscape is likely to keep evolving. The businesses that are adapting to meet the needs of their customers are reporting lower levels of waste, higher turnover on shorter trading hours and with less staff – almost a perfect storm. Businesses that closed during lockdown and that have been slow to return are finding the new normal less easy to come to terms with.
Some operators prefer card or online payments to reduce risk of spreading the covid19 virus and yet other businesses are saying CASH ONLY. Cynical onlookers might think that a cash only business is possibly not declaring all of their turnover but that may not be the case at all. It may be that they are trying to avoid the transaction fees that a card payment provider imposes but they’ll still get caught out with charges when they try to pay takings into the bank.
Whichever camp you’re in – be it the cash only camp, the contactless delivery group or the eat out to help out team, you have the right to decide if you want to reduce your prices and pass on the 15% VAT reduction to your customers and kick start your trade or “Pocket the saving” and build some working capital reserves in case things get tough in winter 2021.
It’s an interesting and challenging time and anything that the Government does to help now needs to be taken advantage of – finally something we can all agree on…