Help for businesses and jobs in UK economic statement

Out-Law News | 09 Jul 2020 | 3:03 pm | 1 min. read

A cut in VAT to 5% for the hospitality and tourism sectors and a temporary cut in stamp duty land tax (SDLT) for residential properties are among tax measures announced by the UK chancellor this week.

To support jobs in the hospitality and tourism sectors, a temporary VAT cut from 20% to 5% is being introduced on food and non-alcoholic drinks from restaurants, pubs, bars, and cafes and similar premises and on accommodation and admission to tourist attractions across the UK from 15 July until 12 January 2021.

An immediate reduction in SDLT has been introduced on residential properties, which will operate by increasing the threshold for paying SDLT from £125,000 to £500,000 of the purchase price. The change will be effective until 31 March 2021 and will result in no SDLT being payable on the first £500,000 of any residential property in England and Northern Ireland. This temporary measure is being introduced to try and kick-start the housing market that has suffered a sharp decline during the UK's lockdown to combat the Covid-19 pandemic.

Tax expert Eloise Walker of Pinsent Masons, the law firm behind Out-Law, said: "The economic update did contain measures that will be welcomed by business, especially smaller businesses who have been badly affected by the current Covid-19 crisis".

"The restaurant sector should be happy to see the £10 per head 'Eat Out to Help Out' scheme, which for some may make the difference between continuing in business and going insolvent; residential builders trying to shift housing stock may improve trading off the back of the publicity around the stamp duty reduction to 0% on the first £0.5m; and those concerned about keeping on their furloughed employees may be grateful for the Job Retention Bonus of £1,000 for every furloughed employee who remains continuously employed until January 2021," she said.

"But there was not much in the statement to support bigger businesses. The cut in VAT to 5% for the tourist and hospitality sectors may look good, but that’s about it, and even there we await further guidance on its true scope. That's probably fair – bigger businesses are more able to weather a crisis of this nature," said Walker.

"However, who exactly is paying the bill for these support measures remains a mystery. What will be worrying big businesses - and their employees on higher salaries who may be expecting an income tax increase – will be when, and how, the Government is going to come up with the cash to pay for all this support. The next phase of the government's plan for the economy will be set out in the autumn with measures to support the economy's long-term recovery – so we will have to wait a little longer to find out exactly how the ever expanding borrowing tab is going to be paid," she said.