UK hoteliers encouraged by government’s sales tax cut
UK hoteliers encouraged by government’s sales tax cut
09 JULY 2020 9:16 AM

The United Kingdom has issued more assistance to hotels and hospitality, including reductions in value-added taxes and payments to encourage employees to end furloughs. Hoteliers say this is a start but expect more help before the end of 2020.

LONDON—The United Kingdom on 8 July cut VAT (value-added tax), the equivalent of U.S. sales tax, from 20% on hotel roomnights and restaurant bills to 5%, fulfilling a long-requested demand from the industry, but for a period of only six months.

U.K. hoteliers now would like to see that rate made permanent to maintain competitiveness with numerous European markets that have held their relevant taxes to 5% or lower.

The U.K. Chancellor of the Exchequer Rishi Sunak also offered firms £1,000 ($1,257.15) for every employee brought back out of furlough and retained to at least January 2021.

Russell Kett, chairman of business advisory HVS London, said the moves were a good start.

“I have no doubt that many in the industry will clamor for this to be extended longer-term as we get closer to February, especially as the financial and cash-flow pressures experienced within the sector show no signs of being alleviated,” he said.

For hoteliers in Northern Ireland, the only part of the U.K. that has a land border with a member nation of the European Union, the reduction is of special importance due to the dependence on drive-to and staycation demand during the pandemic.

Thomas Mielke, managing director at business advisory AETHOS Consulting Group, said the fact that money currently is cheap and interest rates are very low also helps.

“The government is saying let’s take advantage of that and spend the money wisely to generate more money and demand, to invest in future-proof industries such as technology and science, keeping in mind the Brexit scenario, to retain Britain’s competitive landscape,” he said.

Mielke and other sources said the £1,000 incentive to bring back furloughed workers likely will not be the difference between an ailing firm maintaining staff numbers or not, but the initiative is welcomed by the industry.

Generational concerns
HVS’ Kett said that measure is being particularly aimed at younger people and should be viewed in this context.

“My main concern is that the furlough scheme has placed the careers of a large number of people ‘on hold’ and puts off hoteliers and companies from taking a more permanent decision to let some of their people go, who are considered to be surplus to their requirements as business levels are slowly reestablished,” he said.

“In many hotels, it will take some three to four years for occupancy levels to return to 2019 levels, but this furlough scheme cannot be expected to last this long for some of the staff who are not needed,” Kett added.

AETHOS’ Mielke said the £1,000 sum is not a lot of money but is more than nothing.

“It is start, an appreciation that the hospitality industry is severely impacted,” he said.

“Reskilling is a big topic, and e-commerce will become super important,” he added.

Mielke urged hoteliers to be balanced about employment and cash flow’s effect on it.

“It is easy to make someone redundant now and then to reanalyze, to make too quick of a judgment call and then having to rehire them expensively. But, yes, it is about cash flow. All these elements need to be balanced, and there must be conversations between investors and operators,” he said.

“Get on with it. Doing nothing does not help,” he added.

Mielke said he expects the government to make more announcements and offers of financial help before the year is finished.

“I expect the government to make another announcement in October and November, to extend schemes. It is sensible to gradually be releasing positive sentiment,” he said.

“Looking at how (the government) has done things in the past, they will want to figure out what we can afford and then spread out the good news to provide momentum,” he added.

Another part of the government’s help is a voucher of up to £10 ($12.57) per person in the country to encourage dining out in restaurants, including those in hotels, during August. The discount is not available on alcohol.

“The voucher scheme will encourage a lot of people to go out. It is definitely a help. The entire industry is complaining, but then everyone is hurting,” Mielke said.

Mielke said the government seems to be doing what it can to support the hotel industry.

“It is about what are the different levers we can use and take advantage of. In Germany, the reduction there in VAT was very welcomed,” he said, referring to a decision by the German government on 3 June to similarly reduce taxes.

Additional headaches
Other worries remain, sources said.

Mielke said investors in the U.K. are looking at the diversification of their portfolios to include segments such as extended stay, micro-living, senior and assisted living and other real-estate alternatives.

“Whether you are setting up or acquiring an operating platform, is it efficient? People should be reevaluating their platforms and investments anyway and seeking to gain the highest value out of what we have,” he said.

“Extended stay, micro-stay, these are very efficient and less costly to run, and the assets lend themselves easily to conversion possibilities, subject to permits. From a guest view, they are appealing, too, for their kitchens, independence and online check-in,” Mielke added.

Al Malik, owner of British hotel firm Remarkable Hotels, said another hotelier demand is that insurance companies pay out on business-interruption clauses, a move unlikely to happen until there is government guidance on the issue.

“I hear that insurance companies are saying this is not a case of business interruption as there is no material damage and thus (COVID-19) is not covered. Policies also differ. I believe the (government’s) Financial Conduct Authority is working on this,” he said.

Malik said one lesson from this year is that everyone in the industry must work together. He, too, welcomed government assistance.

“There is no choice but to collaborate to help lift this industry up. There is no other way,” he said.

In a news release on the announcements, Kate Nicholls, CEO of hospitality-industry association UKHospitality, added that another specter hanging over the industry is rent liabilities, with many unable to pay quarterly rents due to the drying up of revenues.

“Rent bills have piled up over the past few months even though venues were closed, and businesses are now facing huge rent debts with prospects for the future still in the balance. We are going to need government support on this before too long,” Nicholls said.

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