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This is not a Budget 2020

This is not a Budget 2020
This is not a Budget 2020
Fri Jul 10

Financial Statement 8th July 2020

Today, Chancellor Rishi Sunak made a statement to restart the economy for the post Covid World. There are four main areas which benefit:

  • Houses
  • The hospitality, accommodation and attractions sector
  • Jobs in certain key sectors
  • Public infrastructure investment.

Headlines

  • No SDLT on the first £500,000 paid for houses.
  • £5,000 towards £7,500 of spend per household on energy saving or efficiency improvement products.
  • Landlords can also apply.  A landlord letting ten dwellings could benefit from £50,000 of government support.
  • Hotels, bars, cafes etc will pay HMRC 1/21st  of their sales as VAT instead of 1/6th.
  • “Eat out to help out” to reduce meal prices, but Monday to Wednesday only.

Houses

First, SDLT has been temporarily reduced for houses such that the first £500,000 of consideration is taxed at 0% (3% if it is a second dwelling).   This will end 31st March 2021.  It is not clear whether multiple dwellings relief will retain its minimum 1% SDLT charge.

Second, energy saving grants. This could be especially important as in a few years’ the EPC requirements for ASTs is planned to go up to D as a minimum, so if your house is below D, then you must either improve or you won’t be able to let.

The Government will, from September, make £2bn available to provide vouchers for landlords and occupiers which will cover £2 for every £1 spent, i.e. you spend £3, they pay £2, up to a limit of £5,000 (£7,500 of spend per household) or £10,000 (fully funded) for poorer households.

We suspect that this £2bn will be used up quickly, so first come, first served.  Applications will be available online.  This is a splendid opportunity for landlords of residential property to install some energy efficient improvements in a cost-effective way and at the same time reduce their tenant’s energy costs.

Hospitality

From 15th July 2020 to 12th January 2021, supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK, and supplies of accommodation and admission to attractions across the UK, will attract VAT at the rate of 5%.   Most accommodation is VAT exempt, but accommodation wise, this is targeting hotels, boarding houses, camp sites, holiday lets etc. which normally charge VAT at 20% (with reductions for longer stays).

Given the discounts and offers being made in these sectors, we are sceptical about the VAT incentive and would not expect prices to drop, but restaurateurs, hoteliers etc. will  only pay 1/21st  of their takings to HMRC, rather than 1/6th as now.

This means these businesses could become VAT repayment traders and should consider moving to monthly VAT returns.

In addition, for the month of August 2020, there will be “Eat to Help Out”.  This will entitle every diner to a 50% discount of up to £10 per head on their meal, at any participating restaurant, café, pub or other eligible food service establishment. The discount can be used unlimited times and will be valid Monday to Wednesday on any eat-in meal (including on non-alcoholic drinks) for the entire month of August 2020 across the UK. Participating establishments will be fully reimbursed for the 50% discount.

The catch?  The scheme is only available for those eating in on Mondays, Tuesdays and Wednesdays.  But  good news if you are planning a “staycation” in August.

Jobs

Not our area, but myriad schemes which are being augmented, from those relating directly to people already in employment, e.g. £1,000 per employee bonus for employers who have their furloughed staff working for them on 31 January 2021; to those for new entrants to the jobs market and training.

There are additional benefits for apprenticeships (a much under-used scheme) of up to £2,000 per new apprentice, also employment of those on Universal Credit aged 16 to 24 where the Government will fund the relevant minimum wage for 25 hours per week and other costs for the first 6 months (“Kickstart Scheme”), and other funding packages e.g. training for 18 to 19 year olds in engineering and the care sector.

Public Infrastructure

A long list of public infrastructure projects and areas which are in many areas, If this could be an opportunity for you, and for more detail please see here.

Conclusion

 The statement’s equivalent of the HM Treasury Red Book notes that

  • ATM transactions are down by 52% compared to a year ago
  • Retail bank deposits have increased by £25.6bn over the last 6 months, 5 times the amount expected
  • £4.6bn of consumer debt has been repaid and
  • Nine million people have been furloughed out of 38m workers (24m full time).

The Chancellor is hoping that his short-term incentives will encourage consumers to spend more.   They might have a small celebration, but we suspect people have got used to a new way of living, more time with the family, more time at home, less travel, less eating out and enjoying the cash from the money saved.  We will see whether the world has changed or whether we all return to the rat race.

Glossary and small print

This note assumes that the reader is either a client of this firm or an adviser to such a client and is, of course, no substitute for advice based on your personal facts and circumstances.  No liability is accepted for reliance by any person upon any statement made in this paper.

EPC – Energy Performance Certificate, ASTs Assured Shorthold Tenancies.  If a meal is £12, the restaurant currently hands £2 to HMRC as VAT, but in future they will hand over only 57 pence.  If their VAT on costs, e.g. rent, power, cleaning etc exceeds the amount due to HMRC, the business is entitled to a cash refund.

 

 

 

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