HOSPA Webinar - 11th June 2020

FINANCE UPDATE - Hosted by HOSPA and BDO

Joint webinar with BDO, sharing an update on the current financial situation during COVID-19

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ATTENDEES

• (JP) Jane Pendlebury - CEO, HOSPA

• (RB) Robert Barnard, Partner, Hospitality Consulting – State of the nation & high-level expectations

• (ME) Mark Edwards, Partner, Audit - Accounting & audit update

• (JC) Jon Claypole, Partner, Taxation – Tax overview update

• (KR) Katy Rabindran, Director, Taxation – R&D & potential claims for innovation

• (MP) Martyne Pearson, Director, VAT – VAT changes & considerations

• (RG) Ryan Grant, Partner, Business Restructuring – The market conditions & business sentiment

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Agenda

00:00 Introductions 

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11:00 Industry remarks…

Mark Edwards 

[RUN THROUGH SCREENSHOT]

Incremental borrowing rates… how much weight should be given to external borrowing?

Reach out to advisor or call BDO for advice if unsure on above.

If you are given refunds, should go against revenue

Where are uncertain tax liabilities located?

Offsetting - In order to offset, you need not only the legal right, but the intention to net settle too. Requires more thought on how cash balances sit. Not a change, but has come under the spotlight

 

19:00 UK GAAP (Generally accepted accounting principles)

MARK: Energy and carbon reporting require expert guidance and support as more difficult than it appears

A lot of specifics not included, so worth getting right and thinking and referring to government guidelines.

 

28:00 Coronavirus

MARK: 2019 year-end, non-adjusting post-balance 

Whichever year-end you are working through, it will be difficult.

Three lens approach looks at your organisation from 3 perspectives to assess

 

32:00 FAQs

Costs of recommencements

Thinking ahead about costs, cannot provide for costs not yet occurred. If you know that you are going to have to pay extra in the future, have to wait

Depreciation holidays

No holiday, calculations continue as previous. MAYBE some very very specific examples where that isn’t the case, highly unlikely

Adjust / non-adjust post-balance sheet. 

Not included <2020, unless conducting business in Wuhan

Furlough Scheme Accounting

Obligation on those applying for it, to do so correctly

Do you account for cost, net, gross? Government grant, so accounted for in a particular way, under IFRS, gov can be accounted for net P&L gross in the balance sheet.

Under GAAP, must present those Gross in balance sheet.

 

Leases and rents

Any rents will continue to be charged as they were previously. 

Post year end bonus waivers

How do you unwind discrepancies? Reversal of accrual for non-adjusting post-balance sheets in 2019 would happen in 2020.

 

38:00 Framework for re-evaluating the future

Longhaul.. Need to make sure businesses are prepared and ready for the new normal.

 

41:00 HMRC TTP & corporation tax loss claims

Jon: HMRC has done a good job in achieving time to pay. Only difficulties were getting through to the dedicated hotline.

Deferral through to 30th June which is fast approaching, given the ongoing impact on our sector, need to revisit

Furlough - PAYE / NIC MUST be paid

Huge penalties if furlough is broken.

We need to look into all elements of business before a repayment plan will be agreed. Regular payments and no balloon at the end.

HMRC - if you’re large enough that you have a customer compliance manager, this is the best way to talk to them, if not, its the usual means.

>£750k - large debt teams, under more scrutiny.

 

48:00 Corporation tax loss claims

12 months to submit a claim.

 

50:00 VAT

Coming up to the end of deferment period for VAT, most that could be, have been taken advantage of.

Originally, advised to ask for deferment of VAT payments, however not needed now in reality.

If you don’t make a payment/file a VAT return on time, you will get charges

IF YOU RECEIVE A DEFAULT, call and ask them to remove it. 

Cancel DDs -30th June was advised. If taken by mistake, however, you may be able to reclaim.

 

53:00 Cash Flow

How to improve cash flow.

PAYMENTS ON ACCOUNT

Change VAT return stagger from quarterly to monthly. More admin, but you’ll get cash quicker.

Takes about 30 days to be processed.

If you’re a large VAT payer (£2.3M PA), obliged to make payments on account.

BAD DEBT RELIEF

Debts unpaid after 6 months, you can claim the VAT back if written off to a bad debt account

Be careful about purchases not paid for 6 months

TIME OF VAT RECOVERY ON PURCHASES

Are you getting repayments on time? Watch out for VAT recovery on purchases

 

1:02:00 TOP TIPS

Cash accounting / annual accounting

• These types of regimes are limited to the entity, not group.

Are you recovering all the VAT you are entitled to?

• Employee expenses and petty cash

• Mileage

• Alternative evidence - Normally can only reclaim VAT if you have a valid VAT invoice, can look at alternative evaluations. E.g. property - if you have a large property portfolio and are incurring large costs, proforma invoices may be used (and other alternatives) if agreed with by HMRC.

VAT liability

Revisit liability issues in your business

Attribution - think about it and revisit

 

1:07:00 PRACTICAL CONSIDERATIONS

We need to make sure we are mitigating where we can, any impact of COVID-19. Most of VAT should be repayments, however by 30th March, we may be in a different situation, need to have those conversations before.

 

1:09:00 VAT PROPERTY

Does a break in trade mean that my VAT free TOGC is no longer valid? If you have bought and sold a business in the last few months, its worth contacting HMRC to get on their radar about where you stand.

Lots of negotiations happening about leases.

HMRC have allowed an extension to notify them by 90 days for decisions made to tax. (Post 30th June, back to 30 days)

Domestic reverse charge delayed again. New date 1st March 2021.

 

Lots happening March 2021, be organised.

 

1:14:00 MAKING TAX DIGITAL

Digital link criteria will not come into force until 1 Apr 2021

 

1:15:00 BREXIT

It is still coming…

We need to think about suppliers that fall within the Brexit supply chain. We have had no indication yet as to whether the lead in periods will be extended further. New tariff customs duty coming into play. Not overly relevant for UK based, however those trading internationally may wish to think about sourcing centrally. Happening 1st Dec 2020

 

1. Make sure you’re on track for VAT returns post 30th June

2. How can you help cash flow? Move VAT staggers. Reclaim from purchase perspective. Watch out for property.

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1:17:00 R&D CLAIM POTENTIAL FOR HOSPITALITY BUSINESSES

Katy: POLL ON THOSE MAKING R&D TAX CLAIMS

ARE YOU CLAIMING?

93% NO 7% YES

ARE YOU, OR WILL YOU BE INVESTING IN NEW TECH, AS A DIRECT RESULT OF COVID-19 OR NOT?

32% NO 68% YES 

R&D Tax relief is a cash relief. This works out at 10% for a large company (more than 500 employees in the group).

If not in that group, you may be able to claim up to a third of expenditure in cash.

Projects must involve scientific or technological uncertainties

Examples:

• Events companies created a virtual system to help convert

• Hotel Linen company invented new processes and received funding

• Food and beverage to improve shelf life and create packaged food options

• Cashless payment platforms

• Travel & aviation - systems that need to adapt to the new world within the sector

...what about your business? Application of tech in a particular sector that gives rise to R&D, and an increase in claims.

Claiming: Looking at future claims etc, however if you have never claimed, you can look back 2 years and submit a claim.

HMRC currently making payments within 28 days for large and SMEs.

Hotel of the future…

Smart hotels with advanced booking systems to support conversions

Logistics and tech - touch free check-in system

Use of robotics in the sector

As you consider your investments, bear in mind these R&D tax reliefs, as you could claim back between 10 -33%.

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1:26:00 QUANTIFYING SAVINGS

STEP ONE: Think widely across business about where these savings could be made; food, IT, processes, new products, customer experiences.

STEP TWO: Estimate cost savings (10 or 33%)

STEP THREE: Talk to an advisor about the benefits it could bring to your business

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1:27:00 MARKET FORCES AT WORK

Ryan: Market changing on a daily basis. Safeguarding the business stage.

Government came in with lots of measures to improve and help businesses. With exceptions of C-build loans, government levers presented, masks the impact on markets.

A lot of liabilities have been created within the UK balance sheet. Government needs to create further measures for this. Not just deferments, will they consider debt forgiveness.

E.g. travelodge

Sentiment: everyone understands that we need to find the time to work through this. Very different to the financial crash in 08 as there is still liquidity in the market. Gov interventions have bought businesses time to do this.

What have we seen?

Anything that a businesses needs to come out of this period, needs to be viable and they need to be able to demonstrate that. Caveat is that it is hard to predict still. And we still don’t know what implications/timescales are.

Lots of considerations going into leasing/renting, how to treat landlords fairly whilst giving support to businesses.

C build / cL build were underperforming pre covid

What about the banks?

Very willing to work with businesses. They will provide support e.g. payment holidays. Enforcement is not an option, banks know this, just need to support and stand together.

Main them - all in this together. Cannot turn to one stakeholder and expect a silver bullet, what can we do to come together and support. 

Businesses need a period of time to navigate out. But how long? Nobody knows.

What do businesses need to do?

Be proactive. Be knowledgable, watch the updates, and know what’s available to you. Be in control of your businesses cash.

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1:32:00 Remarks on the industry

Robert: Hotels worst hit, new challenges, but also potential opportunities.

Gove revealed its 3 step plan allowing some in the sector to reopen, however not hotels, only open to keyworkers.

4th July, new date for opening. Subject to meeting 5 conditions.

When open in july, sector will have endured one of the most damaging lockdowns.

Suggested 40% occupancy when hotels reopen.

Measures taken crucial by gov, however have not been enough for all.

Many hoteliers hoping for a reopening in July and a boom in ‘UK staycations’ with places like Lake District being the best option. And luxurious hotels the better choice

Intercontinental partnering with hygiene/cleaning companies

It may be some years before businesses are able to return to any sort of normal and when they do reopen, it will not be ‘business as usual’ Thought given to every thought point, with public spaces abiding social distancing.

Cleaning and hygiene will see advanced procedures implemented 

Single use toiletries preferred over more sustainable choices.

Enhanced options for in-room dining.

Pools, gyms, spas pose a particular cause for concern.

 

It is important to maintain positive supplier relationships and communicate with your suppliers.

SUMMARY: Stakeholder communication is key, and we are all in this together if we are to navigate out of this successfully.

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QUESTIONS

1. After 2008 crisis, 

The industry will be in a very fragile position and there will be vultures waiting to swoop, with private equity funds sitting on piles of cash, who may jump on these.

However, this industry is able to bounce back.

2019 - old normal, 2021 - new normal. By 2022/3, we will see a ‘new’ normal, with a considerable number of transactions.

1. VAT RECOVERY…

(Martyne will come back)

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1. CONTACTING HMRC

Use the COVID helpline if you cannot get any luck with number provided.

1. PAYE payments is not permitted to be included in time to pay.

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10:51:00 - ENDS.