29th July 2020 | Coronavirus: Key measures for the Hospitality Industry. What do they mean for your business?

HOSPA Webinar - 29th July, 2020

Coronavirus: Key measures for the Hospitality Industry. What do they mean for your business?

Few of us could have anticipated the effects Covid-19 would have on our personal and professional worlds even as lockdown commenced back in March. Whilst the situation has been challenging for the hospitality sector, not all experiences have been equal.

In the Chancellor’s latest economic statement he laid out a number of measures to assist the hospitality sector. But what do these mean for your businesses in practical terms and what are the latest updates to other Government schemes?

Topics covered in this webinar included:   

• Cashflow and funding as the end of CBILS draws closer. 

   

• Recent government updates including VAT cuts for the sector and the Eat Out to Help Out Scheme.

   

• Workforce planning, the furlough scheme and the new bonus scheme to bring back furloughed workers.

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ATTENDEES

• (JP) Jane Pendlebury - CEO, HOSPA

• (CB) Carolyn Brown, Partner, Employment Legal 

• (GM) Greg Moreton, Head of Debt Advisory

• (PH) Philip Munn, Partner, VAT Services

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Agenda

00:00 Introductions 

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01:00 (GM) - I run the debt advisory team at RSM, we’ve been doing a lot of work with companies in terms of talking about the funding of various phases throughout the COVID crisis. It’s the dawn of the post lockdown era, hibernation begins to end and the government support that has sustained businesses throughout lockdown is beginning to unwind. 

Winners and losers emerge, many companies are finding that they have done better than their direct predictions made in march. Cash is even looking reasonably good, recovery looking either U or even V-shaped. Conversely, others are finding that their business model remains uncertain or looks permanently damaged. A surprise third category is also present – good prospects, but working capital strain on restart presents a real threat. The scary thing is that a recession may be coming.

Now is time to “plan and scan”. Get your forecasting and modeling right. Consider all of the downsides and ensure all government assistance is included in your plan. Think of all of the funding options you may have available to you, scan the horizon for all there is. Make sure your thinking goes right from “easier” – existing lenders/stakeholders to “harder” – new money / new structure.

Being prepared and executing well has never been more important. Companies are competing for a limited resource: stakeholders’ time and attention, especially
lenders.

06:00 - The phases of COVID-19 planning:

• Cash management - defer and delay

• Engage with existing lenders

• Approach new lenders

• Seek equity finance

• Restructuring options

08:00 - (GM) Should I have CBILS or not CBILS in my midterm financing plan?

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If it’s your decision, CBILS is a midterm financing instrument, they’re typically a 3-year loan. And it’s often a medium-term loan with advantages over commercial finance. However, it is possible that CBILS won’t fit the situation. If your turnover is over 45 million pounds, CBILS is less obvious for you.

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12:00 - A number of banks have come onto the market and said they will offer CBILS to new applications. The overall summary is you can do anything, except pay yourself money.

14:00 - To conclude, the CBILs application contains three modules

1. Liaison and negotiation with bank

   1. Without a clear ask, lenders sometimes make offers, not in line with expectations

2. Cash flow forecast model

   1. To quantify funding need, a robust financial model with integrated P&L, balance sheet and cash flow is required. 

3. Lender request Document  

   1. Many applications do not include sufficient detail, companies should provide the lender with all of their required information, presented correctly, succinctly and all in one place.

17:00 - (JP) - A couple of people have asked about the banks and how generous and accepting they have been, have you got examples of what to do if banks reject your application? 

(GM) - Banks have been a little bleak about why they aren’t accepting some applications. For example, one bank said to me that they had an application which requested £1,000,000, however, if they were to ask for £700,000 they would have been accepted, it also is down to how you present yourself. 

18:00 - (JP) What is the closing date for applications?

(GM)  - It’s deliberately vague, back in March we were told they would last for 6 months. The official guidance hasn’t been updated yet. It’s been left vague for a reason. They will probably be extending the schemes, but at the minute we don’t have the answers. Our advice is to get your applications in now.

20:00 - (JP) I will hand over to Phillip.

(PM) - I am going to spend a few minutes talking about the VAT update for UK Hospitality businesses.

21:00 - The temporary VAT reduced rating took effect on the 15th of July and it will run until the 12th of January. You have to remember that it’s midweek and mid-month. The reduction will apply to:

• • Supplies of food and non-alcoholic drinks sold for on-premises consumption

  • Hot takeaway food and hot takeaway non-alcoholic beverages for consumption off-premises

  • Supplies of sleeping accommodation in hotels, B&Bs, holiday accommodation, pitch fees on caravan sites

  • Admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities

Exclusions:

• • Cold takeaway drinks

  • Conference rooms, wedding packages (unless catering is a separate supply for VAT purposes)

  • Alcoholic beverages

Complexities

• • Vending machines, deposits, service charges

25:00 - (PM) - There are rumors that the scheme will run after January but for the moment we need to plan for the temporary reduced rate to the end of the 12th of January.

29:00 - The last point I wanted to mention was service charges, they have been told that these will be outside the scope of VAT reduction. By contrast, if it’s included on your bill as a 10% service charge, this will be included into VAT under the standard rate.

30:00 - (PM) When the temporary reduced VAT rate applied from 15th July 2020, there are still complications around which supplies are deemed to fall within it. There are special provisions, which are options that can charge the tax point for VAT purposes.

The “Normal” rules

• Tax point is usually when the supply is performed.  However, this is overridden where there is:

  • receipt of a payment on a date before the tax point; or

  • a VAT invoice issued on a date before the tax point. 

• The earlier of the two events above would be the new tax point.

The Special Provisions

• Goods

  • You can opt for the basic tax point to apply

  • If part payments/deposits have been taken they can be reclassified using the basic tax point

• Services

  • You can apportion and account for VAT at 20% on the part performed prior to the rate change and 5% for the proportion after

  • Applies equally to continuous supplies of services

If a VAT invoice has been issued, a VAT-compliant credit note will need to be issued.

33:00 - The Eat out to help out scheme is designed to encourage people to return to eating out in the month of August (Monday - Wednesday only).

This will entitle every diner to a 50% discount which can be applied to food and or non-alcoholic drink purchases for immediate consumption on-premises, up to a maximum discount of £10 per diner.

Participating establishments will have to pay VAT based on the full amount of their customers’ bills and must apply to the scheme.

36:00 - (JP) - On the eat out to help out, is there an online calculator to make it easier when you have to work out the bill?

37:00 - I haven't come across a calculator, but I have come across a link to a government website. It’s a very good question, it’s fair to say that when people have gone through this process, especially adjusting their systems, there have been some problems along the way. If your system can’t be adjusted in time, manual adjustments will be allowed. 

38:00 - (JP) Do you know how we should be treating no shows/cancellations from a VAT perspective?

39:00 - (PM) Cancellation fees are a very contentious area, last year they changed their policies. HMRC states that cancellation fees should be within the scope of VAT. 

41:00 - (JP) One final question, long stay guests, if they stay longer than 28 days, can you clarify what the VAT will be?

(PM) - The reduced value rules is not an exemption for any stays longer than 28 days.

You mentioned vouchers, can give rise to other VAT issues, you need to have the record that you accepted a £20 voucher, actually that £20 should be subject to VAT.

43:00 - (JP) - Now, let’s hand over to Carolyn.

44:40 - (CB) - The job retention scheme was designed to support employees who cannot maintain their current workforce because their operations have been affected by COVID-19 to retain their employees. 

45:00 - In terms of grant money, there has been one important constant which will remain until the end of October. This is that the employee is to be paid a minimum of 80% of their wages.

48:00 - In order to claim under phase two (from July 1st) you had to have claimed a previous CJRS grant. Employees are eligible for a kick back, however, the furloughed employee must remain a continuous employee until 31st January 2021. Employees must earn above the lower earnings limits, which is £520 per month. Employees must be paid in each month of November, December and January. The bonus amount is £1,000 per employee and the employee must have been furloughed by that employee under the job retention scheme. Payments will be made from February 2021, more information will be released on the 31st of January.

54:00 - (CB) - 31st July is the last date for claims for the CJRS. Flexi furlough needs a new furlough agreement. Flexi furloughed with variable hours staff you will need usual hour records. You can now make a correction on your claims, if you need to update on your application but you have to do this within 72 hours or notify an error to HMRC within 90 days of the finance act coming into force, by the end of October.

56:00 - (CB) - Reactivation and alternatives to redundancy: 

• Sabbaticals unpaid

• Layoff with permission to work or volunteer elsewhere

• Unpaid holiday periods after furlough ends

• Short time/reduced hours working

• Salary reductions

• Retraining

• Secondments

• Recruitment freeze

• Encouraging all holiday used before furlough support ends

• Early retirement

• deferring booked new hires e.g trainees for a year

58:00 (JP) - Thank you all very much for listening.