Phasing out Covid-19 Business Support: Too Much Too Soon?
Covid restrictions have all but eased across the UK but, at the time of writing, there are ominous signs that that the reintroduction of some restrictions may not be too far off given the rise in covid-19 cases. It’s too early to predict whether that could then trigger another round of temporary financial help for business.
Government has expressed an intention to continue to protect small businesses particularly, as well as commercial tenants as they continue to recover financially from covid-19 lockdown measures. So what’s the state of play at the moment?
Insolvency restrictions – Temporary restrictions on statutory demands and winding up petitions against businesses, which came into force in June 2020, are now being phased out. From 1 October 2021 to 31 March 2022, new measures are in place which will particularly help smaller companies recover from the pandemic before creditor action can be taken against them.
Until 31 March next year, a winding up petition can only be brought by a creditor (or group of creditors) where the debt owed is at least £10,000; and creditors must seek payment proposals from the debtor, giving them 21 days to respond before they can proceed with winding up action.
Note that commercial property tenants are still protected from eviction until 31 March 2022 unless the debt is unrelated to the pandemic.
In the meantime, a rent arbitration scheme is being established by government to tackle the problem of covid-related commercial rent arrears.
End of furlough
The furlough scheme has now been completely phased out after 18 months. The long-running business support measure that enabled business organisations to lay off staff while continuing to pay them reduced amounts during enforced lockdowns finally drew to a close at the end of September.
Millions of jobs were protected; and despite fears of a raft of redundancies, these have not yet materialised. According to the Government, there were 14,000 notifications for redundancies in September 2021 (the second lowest since January 2020).
End of VAT reduction
A valuable temporary measure for the leisure and hospitality sectors was the 5% reduced rate of VAT for some supplies, including hospitality, accommodation and entry costs to attractions. The reduced rate was initially introduced in 15 July and, after a succession of extensions, the rate went up on 1 October 2021 to a new reduced rate of 12.5%.
The rate will then return to the normal 20% on 1 April 2022 (subject to any further extension in the meantime). The scope of the relief will remain the same.
An important point of note is that the reduced rates apply even for services paid for in advance. This is because output tax is applied at the rate of VAT applicable at the time of payment, not when the supply of goods of services takes place. Forward-thinking businesses in the hospitality sector would do well to consider how they can mitigate their VAT costs by strategic advance planning.
Key takeaways
The end of the furlough scheme and the phased increase in the VAT rate for hospitality supplies could hamper the recovery across the hospitality industry in particular. Other factors are increasing costs for the sector, including the well-documented disruption to the supply chain, difficulties hiring the right staff and increasing inflation.
It’s therefore no surprise that the government is already under pressure to introduce more financial support ahead of the Christmas season.
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