The Chancellor Rishi Sunak has today delivered a ‘mini-budget’ aimed at providing additional support to jump-start the economy as it attempts to recover from the effects of the Coronavirus pandemic.
09/07/2020 – Please note that this content has been updated to include information about the voluntary special provision tax point rules which amongst other things may allow your customers to benefit from the reduced rate for supplies that they may have already paid for.
The announcement the the chancellor contained a number of significant short-term measures, particularly for the leisure and tourism sector and for anyone looking to purchase a property in the next 9 months. Below is a summary of these key measures:
Stamp Duty Land Tax ‘Holiday’
The chancellor has announced that the nil rate band for stamp duty on residential properties purchased in England and Northern Ireland will increase from £125,000 to £500,000. The cut will take effect immediately, and will run until 31 March 2021.
This ‘holiday’ means that nearly 9 out of 10 people buying a main home in this period will pay no stamp duty at all and for those acquiring a property for £500,000 or more this represents a stamp duty land tax saving of £15,000.
People buying second homes and buy-to let properties (including those acquired by companies) will also benefit, but will still have to pay an extra 3% duty on the purchase price.
Job Retention Bonus
The chancellor also announced a new ‘job retention bonus’ of £1,000 per employee which will be paid to employers who bring back furloughed workers when the furlough scheme ends in October, provided they are still employed at the end of January.
The minimum wage for each employee should be at least £520 on average per month between November and January.
Payments will be made from February 2021. We are awaiting further detail on the ‘job retention bonus’ and will communicate this further once received.
£2bn ‘Kick-start‘ scheme
The chancellor also announced a £2bn ‘kick-start’ scheme to create new jobs for young people. The fund will subsidise six-month work placements for people on Universal Credit aged between 16 and 24, who are at risk of long-term unemployment.
Each “kick-starter” job will see the government cover the cost of 25 hours' work a week at the National Minimum Wage. Employers will then have the option to top up those payments.
Applications can be made by employers from August, with the first jobs expected to start in the autumn, and run until December 2021 - with the option of being extended.
Bonus for hiring Apprentices and Trainees
The chancellor also announced that businesses will be paid £2,000 for each apprentice they hire under the age of 25, and £1,500 for each apprentice they hire over the age of 25, from 1 August 2020 to 31st January 2021.
They will also fund employers who provide trainees between the ages of 16 to 24 with work experience at a rate of £1,000 per trainee. Trainee-ships are different to apprenticeships in that they are unpaid, but employers usually pay expenses and cover the cost of support courses.
VAT - Reduced rate for Hospitality Sector
From next Wednesday (15 July) the reduced rate of 5% will apply to supplies made by the hospitality sector. Note how this wasn’t referred to as the leisure sector in case people thought that suppliers such as Netflix and Sky were to be included in the drop in the VAT rate. The reduced rate will apply for six months so will be from 15 July 2020 to 12 January 2021.
The Chancellor’s statement referred to food (including hot take-away food) and non-alcoholic drinks, accommodation and admission to attractions in the UK. This is only for supplies made in the UK - overseas trips will not become cheaper as a result of this policy.
The normal tax point rules means that any deposits or payments made in advance of the reduction taking effect are chargeable at 20%.
This could result in a deposit being taken now at 20% and the balance for a stay (payable post 15 July) at 5%, but see below regarding the special provisions which may enable your customers to benefit from the reduced rate for supplies already paid for (including deposits).
Please note that these special provisions are not compulsory and if used, can be used for some supplies rather than all.
There are special provisions which allows for the basic tax point (when the services or goods are provided) rather than the actual tax point (when an invoice or payment is taken) to take precedent in determining the VAT rate applicable.
If you’ve already issued a tax invoice you will need to credit and re-invoice to use these special provisions.
If someone has booked to stay at a hotel for a period that has the supply at 20% and the supply at 5% you can apportion the costs. You would need to issue a credit note and then re-invoice showing the apportionment between the two rates.
Continuous supplies – subject to the special provisions the tax point for a continuous supply is when an invoice or payment is raised so where this occurs on or after Wednesday 15th July then it should be at 5%.
Where a continuous supply spans a change in the tax rate or liability, you may, if you wish, account for tax at the old rate on that part of the supply made before the change, even though the actual tax point would occur after the change (for example, where a payment is received in arrears of the supply).
Conversely, you may, if you wish, account for tax at the new rate on that part of the supply made after the change, even though the normal tax point occurred earlier (for example, where a payment is received in advance of the supply).
Therefore is you make supplies of Annual passes or gold tickets you may, if you wish, look to credit and re-invoice using the special provisions above.
In regards to catering, the reduction only applies to food and non-alcoholic drinks, so alcoholic drinks will remain subject to the standard rate. So if you sell a gin and tonic it’s only the tonic that’s charged out at 5%. If premixed, we presume it will all be at 20%.
Equally, where a pub has a special offer, for example a “pie and a pint for £5” we would expect HMRC to see an apportionment based on cost, but we await details.
Eat out to Help Out
This will be a discount of up to 50% per head (with a cap of £10) for meals consumed every Monday-Wednesday in August. The first point is that the discount only applies to sales that will be subject to the new 5% rate. So, again where the meal has included alcoholic drinks these will need to be excluded from the calculation both of the cost and thus the potential discount. Businesses will need to consider if their sales recording systems allow for this.
As per the example above where there’s a mixed supply (pie & pint) the sales system is likely to need to make a split between what will be sales at different rates (pie 5% pint 20%) to enable the application of the “EO2HO” discount to the element chargeable at 5%.
The announcements published so far do not refer to VAT so the assumption is that the discount is calculated on the net value rather than the VAT inclusive gross. However, we await clarification.
A number of issues raised here (and there will be others) require clarification which we hope will be addressed through further information to be released by HMRC in the coming days. As and when this information arrives we will update you.
Our team are of course here to help if you wish to discuss any of today’s announcements in more detail. We remain committed to our clients to provide support to get you through the difficult climate we currently find ourselves in, so please do not hesitate to contact your normal Rickard Luckin contact.