The hospitality and leisure industries have been severely affected by the Coronavirus pandemic. To help businesses in these sectors to get back on their feet, a reduced rate of VAT of 5% rather than the standard rate of 20% will apply to certain supplies for a limited period, from 15 July 2020 to 12 January 2021.
Food and drink supplied for consumption in the premises, for example by a restaurant or a bar, and hot takeaway food and beverages are normally liable for VAT at the standard rate of 20%. During the support period, the 5% rate will apply instead to:
- hot and cold food for consumption on the premises on which they are supplied;
- hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied;
- hot takeaway food for consumption off the premises on which it is supplied;
- hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied.
Hotel and holiday accommodation
For businesses supplying hotel and holiday accommodation, the 5% rate VAT applies during the support period to:
- supplies of sleeping accommodation in a hotel or similar establishment;
- certain supplies of holiday accommodation;
- charge fees for caravan pitches and associated facilities;
- charge fees for tent pitches and camping facilities.
Meals provided to guests in long-term holiday accommodation (more than 28 days) will also benefit from the reduced rate, but the hire of motor caravans will not.
Admission to attractions
The reduced rate of 5% also applies during the support period in respect of admission to certain attractions which would normally be liable for VAT at the standard rate. However, if the admission fee is exempt from VAT, this will take precedence over the 5% charge and the admission charge will remain exempt.
The temporary reduction will apply to admissions to shows, theatre, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events where these are not included in the existing cultural exemption.
Impact on flat rate scheme
VAT registered businesses using the flat rate scheme should note that some of the flat rate percentages have been reduced to take account of the temporary reduction in the rate of VAT.
The Covid-19 pandemic has meant that many people will suffer a reduction in income in 2020/21. Not all individuals are eligible for support under the Coronavirus Job Retention Scheme or the Self-Employment Income Support scheme, and those who are eligible for the grants will not generally receive their full pay.
Where income drops this may have an effect on the National Insurance contributions payable and the individual’s contributions record, which in turn determines their entitlement to the state pension and contributory benefits. A person reaching state pension age on or after 6 April 2016 needs 35 qualifying years to receive the full single tier state pension.
Employees build up their entitlement via the payment of primary Class 1 National Insurance contributions. For a year to be a qualifying year, the employee must have been paid or credited with National Insurance on earnings equal to 52 times the lower earnings limit. For 2020/21, the lower earnings limit is £120 per week – 52 times this is £6,240. Where earnings are between the lower earnings limit and the primary threshold (set at £189 per week for 2020/21) contributions are payable at a notional zero rate, so the employee gets the benefit but does not have to pay anything.
Missed weeks need not be a problem in themselves, as long as contributions are paid or deemed to have been paid on earnings of £6,240 for 2020/21. However, where the employee earns just above the lower earnings limit, being furloughed or taking unpaid leave can cause earnings on which contributions are paid to drop below the magic level, with the result that the year is not a qualifying year.
Where a person is out of work for a period, depending on whether they receive benefits and what benefits they receive, they may get Class 1 National Insurance credits, which will serve to protect the year. Credits are also paid to those claiming child benefit.
Although the self-employed pay both Class 2 and Class 4 National Insurance contributions, it is the payment of Class 2 contributions (at £3.05 per week for 2020/21) that provides state pension and benefit entitlements. Where earnings are below the small profits level, set at £6,475, the self-employed earner is entitled but not liable to pay Class 2 contributions. If the earner opts not to pay Class 2 contributions (and does not pay sufficient Class 1 or receive NIC credits), the year will not be a qualifying year.
To pay voluntarily or not to pay
If a person already has 35 qualifying years or is likely to do so by the time that they reach state pension age, missing a year will not adversely affect their state pension entitlement. However, if they have less than 35 years (and will be able to reach the minimum 10 years needed for a reduced state pension by the time that they reach state pension age) making voluntary contributions can be worthwhile.
Those with earnings from self-employment of less than the small profits threshold (£6,475 for 2020/21) can pay Class 2 contributions voluntarily. At only £3.05 per week for 2020/21 this is a cheap and worthwhile option.
Where there are no earnings from self-employment, paying voluntary contributions means paying Class 3 contributions at £15.30 per week for 2020/21.
The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline to millions of employees and their employers during the Covid-19 pandemic. As at 19 July 2020, 9.5 million employees had been furloughed by 1.2 million employers, benefitting from support totalling £29.5 billion.
As with all good things, the CJRS must come to an end. The scheme is now is its second and final phase, which runs from 1 July 2020 to 31 October 2020. This phase provides a transition from Government support to employers once again meeting the costs of employing their employers. From 1 July 2020, furloughed employees can return to work on reduced hours under the flexible furlough rules, with employers paying the employees as usual for the hours that they work and claiming a grant under the CJRS for the remainder of their normal hours. Employees who were not furloughed for at least three consecutive weeks prior to 1 July 2020 are not eligible for a grant under the scheme from July onwards (unless the employee returns from statutory leave).
During the final phase of the scheme, employees will continue to receive 80% of their pay up to the equivalent of £2,500 a month – this is known as minimum furlough pay.
From 1 August 2020, the financial support provided under the scheme starts to reduce. For claim periods on or after 1 August 2020, employers cannot claim back the employer’s National Insurance and minimum pension contributions on grant payments but must instead meet these costs themselves. For September, employers can only claim 70/80th of the employee’s minimum furlough pay; this reduces to 60/80th for October. However, furloughed employees will continue to receive their minimum furlough pay, with the employer making up the shortfall.
Job Retention Bonus
When the scheme comes to an end, employers will need to assess their staffing requirements and decide whether they can bring furloughed employees back to work. The Government are keen that they do. To encourage employers to retain furloughed employees, they will pay a Job Retention Bonus of £1,000 for each furloughed employee who is employed continuously from the end of the CJRS until 31 January 2021. To qualify for the bonus, the employee’s earnings during this period must, on average, be at least equal to the lower earnings limit for Class 1 National Insurance purposes, set at £120 per week (£520 per month) for 2020/21. The Government will pay the bonuses from February 2021.
Small employers can now reclaim statutory sick pay (SSP) paid to employees who were absent from work due to the Coronavirus. The online claim service went live on 26 May 2020.
Employers can use the scheme to claim back SSP paid to an employee who is eligible for SSP due to Coronavirus if:
- they have a PAYE payroll scheme that was in operation on 28 February 2020; and
- they had fewer than 250 employees at that date.
SSP can only be reclaimed where the employee’s absence relates to Covid-19; where the absence is for another reason, the employer must meet the cost of any SSP paid. An absence counts as a Covid-19 absence if the employee is unable to work because:
- they have Coronavirus;
- they are unable to work because they are self-isolating because they live with someone who has Coronavirus symptoms; or
- they are shielding and have a letter from the NHS or GP telling them to stay at home for at least 12 weeks.
Claims can be made for periods of sickness on or after 13 March 2020 where the employee has Coronavirus symptoms or is self-isolating because a member of their household has symptoms and for absences on or after 16 April 2020 where the employee was shielding.
The employer can claim back the SSP paid in respect of qualifying Covid-19 absences up to a maximum of two weeks’ SSP per employee. Where the employer pays more than the weekly rate of SSP, rebates must be claimed at the SSP rate — £95.85 per week from 6 April 2020 and £94.25 per week previously.
Evidence and records
Employers do not need to get a Fit note where an employee is off work due to Coronavirus. However, you can ask for an isolation note from NHS111 where the employee is self-isolating or a letter from the NHS or the employee’s GP where the employee is shielding.
Records should be kept of the dates of absence, the SSP paid to each employee, their National Insurance number, the reason for their absence and, where provided, evidence in support of their absence. Records should be kept for three years from the date that the rebate is received.
Making the claim
Claims can be made online on the Gov.uk website. To make a claim, the employer will need:
- their employer PAYE scheme reference;
- contact name and phone number;
- bank details (where a BACS payment can be accepted);
- total amount of SSP paid to employees in the claim period in respect of Covid-19 absences;
- number of employees in respect of whom the claim relates; and
- the start and end date of the claim period.
Claims can be made for multiple periods and multiple employees at the same time. The end date of the claim is the end of the most recent pay period for which a claim is being made.
During the COVID-19 pandemic, landlords may find that tenants are unable to pay their rent, and, when a let comes to an end, that they are unable to re-let the property, or have to accept lower rent. As a result, they may make a loss on their property rental business.
Calculating the loss
Any loss arising from the property rental business is calculated in the same way as profits. Where the cash basis is used, as will generally be the case being the default basis of preparation for most smaller landlords, the loss for the period will be the cash received by the property rental business less the cash paid out.
Automatic set off against properties in the same property rental business
As profits and losses are calculated for the property rental business as a whole, if there is more than one property in the rental business, a loss on one property is automatically set against any profit from other rental properties in the same business.
A landlord has three properties that he lets out. In 2019/20 he makes a loss of £3,000 on property A, a profit of £2,000 on property B and profits of £1,500 on property C.
The loss on property A is set against the profits on property B and C when calculating the overall result for the property business as a whole. Overall, the property business has a profits of £500 (-£3,000 + £2,000 + £1,500).
Utilising a loss
The general rule is that a loss on a property rental business can be carried forward and set against profits from the property rental business in the following year. If there is a loss in the next year or profits are not sufficient to fully utilise the loss, any unused part of the loss can be carried forward to the next year and so on until it can be used. There is no limit on the number of years for which the loss can be carried forward.
The same property business
Losses can only be set against the future profits of the same property business. If the landlord has more than one property business, for example a UK property business and an overseas property business, the losses from one cannot be set against the profits of another. Losses from a furnished holiday letting business can only be carried forward and set against profits of that business.
A landlord has a property rental business. In 2017/18 he makes a loss of £5,000, in 2018/19 he makes a profit of £4,000 and in 2019/20 he makes a profit of £3,000.
The loss of £5,000 is carried forward and £4,000 of it is set against the profits of 2018/19, reducing the profits for that year to nil. The balance of the loss of £1,000 which cannot be used is carried forward and set against of 2019/20, reducing the taxable profit for that year to £2,000.
Losses lost if property rental business ceases
If the property rental business ceases before the losses have been used up, the losses are lost. This remains the case if the landlord starts a new property business after a gap as the new business will be a different property rental business.