The UK chancellor Rishi Sunak announced a number of measures in parliament today [8 July] in an effort to help the UK economy recover from the Covid-19 pandemic.
Changes included the temporary removal of stamp duty for properties under £500,000 ($629,550), the cutting of VAT in certain areas of the hospitality sector from 20% to 5%, and a range of incentives to encourage businesses to take on apprentices and trainees.
Below are some of the responses from the profession.
The Chartered Institute of Management Accountants (CIMA) CEO – management accounting – Andrew Harding: “We welcome the Chancellor’s Financial Statement. Measures such as additional funding for traineeships, money to fund apprenticeships and support for young job seekers via the Kickstart scheme will be essential to aid short-term recovery. However, this statement does not go far enough to tackle the long-term challenges faced by the UK economy, which this crisis has only exacerbated (e.g. low productivity, high dependency on low-skill service sector jobs, regional imbalance, and weak social mobility).
“We have missed our first opportunity to help our economy back on a sustainable, sound footing. For example, the VAT cut on food, accommodation and attractions will only encourage relatively limited business and consumer spending in the immediate term. The Government needs a strategy to go further than it is has today and lay the groundwork to drive the long-term economic recovery it promised. This should include giving businesses and investors certainty on the tax and regulatory frameworks over the next two years to support inward investments, directing skills training towards jobs and sectors with real-wage growth potential, and designing appropriate measures to support SMEs and new startups.
“Let’s hope the Chancellor doesn’t wait too long to address these challenges or we risk missing the boat to long-term economic recovery.”
ACCA tax policy lead Jason Piper said: “Cutting VAT from 20% to 5% is an admirable attempt to stimulate demand. When combined with the eat out vouchers, we hope it will be effective in the short-term in achieving this aim.
“The Chancellor’s restraint in not adjusting other areas such as payroll taxation will be welcomed by businesses already faced with adapting to the CJRS regime, although in the longer-term change may be needed and of course further furlough support would be welcomed. But even the current incentives will have an administrative impact, especially where not all elements of a given supply qualify for the reduced rate.
“ACCA urges businesses, particularly those involved in accommodation and attractions, to familiarise themselves with the new guidance around VAT. We call on HMRC to be understanding around business capacity and forgiving of innocent errors on VAT as businesses acclimatise to the administrative complexity created by today’s announcement.”
ICAEW CEO Michael Izza said: "After the enormous level of government financial support put in place in recent months to protect businesses and preserve jobs, the challenge the Chancellor faced today was to engineer a soft landing for the economy when it is phased out – as it inevitably must be. He has made a good start, acting to rebuild confidence on one hand, while offering targeted and tailored help to companies to get them through to what we hope will be better times in 2021.
“Mass unemployment would have a crippling effect on our economy and society and the Chancellor is right to make that his priority for now. However, at some stage the public finances must be restored, and action taken to reduce the huge debt the UK is carrying. The Chancellor must tackle this in the Budget later in the year, together with a comprehensive and sustainable strategy to bring on the long-term economic transformation we need to see over the next decade.
“There will doubtless be practical issues with implementing some of these measures, such as temporary cuts to VAT, and we will continue to work closely with HMRC and other government departments to address these.”
Alvarez & Marsal head of tax Marvin Rust said: “Businesses have been paralysed by the pandemic, yet the Government has not gone far enough in its efforts to breathe new life into the sectors worst hit. A VAT cut that only applies to the hospitality and tourism sectors ignores industries like retail and aviation that are crying out for additional help. These sectors have been shuttered for months and are struggling with cash flow, paying their rents and retaining employees. A cut to VAT and a national insurance holiday would have been a lifeline for these companies, but now they are forced to go without.
“Despite the Government’s focus on jobs, without additional measures of support, many sectors will struggle to retain existing staff, let alone bring back all employees from furlough and recruit new colleagues – even with the state bonuses. Although the Chancellor talked about payment for the support over the medium term, he did not deliver the psychological assurance to consumers that there would be no tax rises in Income Tax or VAT in this Parliament.”
PwC head of tax Marissa Thomas said: “The Treasury had seemingly been at pains to dampen expectations of tax cuts ahead of today’s statement but the Chancellor pulled some of the tax system levers to deliver a shot in the arm for the economy in the form of targeted reliefs on VAT and stamp duty.
“While we will have to wait a few months until the Autumn Budget for a full picture of the UK’s post-Covid-19, post-EU exit tax system, today offered a clear indication of where the Chancellor’s priorities lie. Protecting jobs for the young is obviously top of the agenda. Disadvantaging young people now could cause permanent economic damage in the future, a concern the Chancellor has looked to address.
“There are clearly some big decisions yet to be made. The tax system can be used as a mechanism to achieve the Government’s goals of ‘levelling up’ the economy, meeting its net zero targets and improving public services to redress the inequalities that have been further exposed by the pandemic. Looking forward, there will be an expectation on those who have benefitted the most from stimulus and support measures to play the biggest role in leading the recovery.
“There is no question that the next Budget will be one of the most important and significant in history.”
EY head of indirect tax Jamie Ratcliffe said: “The Chancellor’s announcement is a welcome and targeted measure for the hospitality and leisure sector which has been impacted by COVID-19 and this VAT reduction from 20% to 5% is designed to help stimulate spending.
“Prior to the announcement, there had been speculation that there would be a general rate cut – which we have recently seen in an increasing number of countries. Given the limited impact the last cut to the VAT rate had in 2008, and that, under the terms of the withdrawal agreement with the EU, the maximum reduction would have been to 15%, it is not surprising that the Chancellor has restricted the measure. It does not of course rule out a further cut in the future if consumer spending needs further stimulus.
“Although this is a targeted response, implementation will be more complicated than it appears. There is a body of case law around when is food not food but catering, and already there is confusion among retail outlets over the categorisation of certain product offerings that contain both hot food and alcohol, for example the pie and a pint offer. The reduction in VAT will not apply to any alcoholic beverage, so outlets offering alcohol and food combinations will need to carry out product reviews immediately to be ready in time for next Wednesday.
“Other businesses may be unwittingly caught by this – shops that have a restaurant; hospitals that provide catering and all businesses will need to determine if both purchases and supplies fall within the new reduced rate or not.
“Based on experiences in 2008, the impact to business is much more than a simple change of rate in accounting systems. This will cut across the whole end-to-end VAT reporting cycle, processes, systems and data that businesses, however large or small, must adhere to. There will be many operational questions including how to treat pre-payments for accommodation and supplies that apply to the rate change.”