Survival Strategies: Maximising Government Incentives

By Emma Maile, Director, haysmacintyre (www.haysmacintyre.com)

As pubs, restaurants and hotels emerged from hibernation and began trading over the last month or so, the ability to resume income generation has been a welcome step in the right direction. However, businesses are still under huge financial pressure, with forecasting and reforecasting fundamental to their survival.

Fortunately, the Government has recognised that the hospitality indus- try has been one of the hardest hit sectors, and introduced a number of additional measures to help, most notably, the Eat Out to Help Out scheme andVAT cuts.While the true impact of these measures is still unclear, businesses should certainly reflect upon them, so they can understand how best to capitalise on this helping hand.

EAT OUT TO HELP OUT

It was widely reported that there were 10.5million meals claimed in the week that the Eat Out to Help Out scheme launched, indicating that consumers were looking to make the most of the discount on offer.This influx of sales meant that many sites had record weeks, and although it is early days, month end results for August are likely to look healthy with a welcomed boost in cash balances.

Whilst many operators are relishing increased covers, there is concern that this initial boost in sales is not necessarily an indication of future levels, and that September may experience a slump, with consumers unwilling to pay full prices or the novelty of eating out having worn off.

As such, it is particularly difficult for operators to use current trading levels to look forward and forecast for following months.At this early stage, with such volatility of consumer demand paired with the uncer- tainty of a second lockdown, longer-term planning remains almost as dif- ficult as before businesses reopened.

In order to try and streamline demand, some businesses may want to consider extending the scheme’s benefits to customers, either for Thursday’s or Friday’s in August, or into September and absorb the costs themselves. However, any decision to increase customer discounts will depend on the business’s discounting strategy.

Whilst it is unclear how the scheme will help long-term sales, it is clear that businesses signed up to the scheme are reaping large benefits, and it has certainly been worthwhile, if only in the short term.

REDUCTION OF VAT TO 5%

Whilst the reduced VAT rate does not apply to alcoholic beverages, its wide-ranging and provides a much-needed cashflow boost to all busi- nesses within the sector.Although some may choose to pass these sav- ings onto customers, the majority, who require the extra cash, are instead keeping them to help ensure the business’s survival.

FACTORING IN DEPOSITS

One sub-sector benefiting particularly are those who hold significant deposit levels, namely those that provide accommodation.The date a deposit is paid normally forms the date when VAT has to be accounted for.Therefore, deposits paid before 15 July 2020, will have been subject to VAT at 20%. However, special change of rate provisions may apply for reduced VAT from now until 12 January 2021 for hotel rooms or cater- ing, as long as the actual supply itself takes place between 15 July 2020 and 12 January 2021. Not only would these special provisions allow hotels to apply the 5% rate to both the deposit (already taken) and the balancing payment, but if the deposit had already been accounted for on a VAT inclusive basis, and the price for customers remains unchanged, businesses may be able to receive a 15% refund of theVAT paid.This will not apply to corporate bookings where VAT invoices have been issued, as any VAT saving would have to be passed onto them by issuing a credit note.

For many pubs, restaurants and hotels, the reduction to VAT will drastically help operators to regain control over their cashflow on a number of services they offer, providing cash-strapped businesses with a welcome boost in these uncertain times. Coupled with increased sales from the Eat Out to Help Out scheme, businesses can really take advantage of the help provided by the Government in order to increase their chances of survival.