WINTER ECONOMY PLAN: TAX MEASURES FACTSHEET
The government announced it will extend the temporary 15% VAT cut for the tourism and hospitality sectors by 11 weeks, ending on 31 March 2020 rather than 12 January 2020.
- 8% of the UK’s workforce – over 2.4 million people – rely on hospitality, accommodation and attractions for employment. Extending the reduced rate means that over 150,000 businesses will continue to be supported. It is up to businesses to decide whether or not they pass on the savings to consumers.
- 80% of hospitality firms stopped trading in April and 1.4 million hospitality workers have been furloughed – the highest proportions of any sector. [ONS Business Impact of COVID-19 Survey (BICS) results, BICS Wave 3: 6 April to 19 April 2020, HMRC, Statistical Bulletin, Coronavirus Job Retention Scheme Official Statistics – 11 June 2020 Release, Resolution Foundation: the full Monty]
- Evidence from 2008 suggests that the hospitality sector could be a key contributor to the jobs recovery post-Covid. It generated 22 per cent of new jobs for unemployed people in 2010 and 2011, according to the Resolution Foundation, despite accounting for just 10 per cent of overall employment. [Getting Britain working Safely again, 2020]
Whose jobs will the VAT cut protect?
- Employees under 25 are over twice as likely to have worked in a sector that has been shut down than other employees [IFS – “Sector shutdowns during the coronavirus crisis: which workers are most exposed?]
- Employees in the hospitality industry are more likely to not have a degree or higher qualification, putting them at greater risk of greater risk of long-term unemployment issues [ONS, Graduates in the UK Labour market, 2017]
- 18% of employees are from black, Asian, and minority ethnic backgrounds, which compares to 13% from all industries (ONS Annual Population Survey 2019).
- It employs more women than men, 56% and 44% respectively. [ONS Labour Force Survey, June 2020, Graduates in the UK Labour market, 2017]
- The sector is a significant source of regional employment, particularly in regions dependent on tourism, including Cornwall and Isles of Scilly Devon, Cumbria, North Yorkshire and Highlands and Islands. (ONS BRES, 2018)
- The majority of businesses (53%) in the hospitality and accommodation sector are registered for VAT, and it is estimated that these account for more than 90% of employment in the sector. Extending the reduced rate will continue to support the accommodation and food services industry which, according to the ONS, employs 1,008,000 women compared to 785,000 men.
The government announced a New Payment Scheme for deferred VAT
How does this help businesses?
- We want the recovery to continue and continue strongly. We don’t want businesses to face large bills for their deferred VAT just as the economy is recovering.
- This measure eases the burden for businesses by helping them with their cash flow as they adapt to the new economic environment.
How does it work?
- All UK VAT registered businesses could access the original VAT deferral scheme and as of June 7th, £27.5bn in VAT had been deferred by 496,000 businesses.
- Under the New Payment Scheme businesses will have the option to make 11 equal payments (each around 9%) of the total deferred VAT they owe, starting at the end of March 2021 with an initial upfront payment (of around 9%).
- A business could move from paying 100% of deferred VAT due at end March to paying just 9%. The average deferred VAT per business was around £60,000. Only 9% of that would be due at end March 2021 (£5,400) rather than the full 100%
- The British Retail Consortium called the original VAT deferral a “vital lifeline”. The CBI said it “will support the livelihoods of millions”
- Since March 2020, HMRC have also set up a dedicated Covid-19 helpline to support customers seeking a TTP, making 2,000 staff available on this line to handle increase demand, with over 60,000 enhanced Time to Pays have been agreed through that helpline, covering over £12bn of tax.
The government announced enhanced Time to Pay for Self-Assessment Taxpayers
- Self-assessment payments due in July 2020 were deferred to January 2021 for any taxpayer who opted in by not making their July 2020 payment . No interest or penalties applied to these deferred payments.
- Approximately 1.5 million taxpayers deferred an estimated £6 billion after the Self-Assessment Tax Deferral was announced in March 2020. This represented an estimated 45% of tax due being deferred.
- Of the 11 million self-assessment taxpayers, an estimated 2.7 million (including 1.3 million self-employed) had payments on account due in July 2020 and were eligible for the deferral. There were no sectors/ businesses excluded.
- To further support the self-employed and other taxpayers that may struggle to pay their deferred July payment on account, HMRC are upgrading their current Time to Pay “self-service” facility.
- Extending the previous offer of assistance for up to £10,000 of tax debt, from 1 October all 11 million self-assessment taxpayers will be able to benefit from a new, more generous option to form a payment arrangement of up to 12 months for their self-assessment tax due in January 2021
- Taxpayers with up to £30,000 worth of self-assessment tax debt (c95% of self-assessment taxpayers) will now be able to agree a payment plan that suits them online via the gov.uk website. Those with more than £30,000 worth of debt would still be able to arrange a payment plan with HMRC over the phone.