Is the Government's announcement of a cut in VAT enough to revive the hospitality sector?


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The Government has announced VAT cuts for the hospitality sector for the next 6 months, from 20% to 5% from this Wednesday, 15th July until 12th January 2021.

This is obviously welcomed news for a sector which has been under huge financial pressure resulting from the pandemic.  It is estimated by the Government that the temporary VAT cut, together with the meal discount plan, offer a further £4.6billion stimulus to the economy, specifically targeted at stimulating demand in the hospitality sector. 

Businesses in hospitality have endured a very challenging start to 2020. As the UK entered lock-down, hotels and restaurants were ordered to close their doors to new guests placing further pressure on businesses at a time many were already struggling.  This situation has forced many in the sector to consider winding up the business or appointing administrators to consider the feasibility of a rescue or restructuring process.   

The hospitality operator, Suite Hospitality Limited, has become the latest in the industry to enter administration. The company operated hotels, including the Buckerell Lodge Hotel, Exeter, the Harte and Garter Hotel, in Windsor and the Makeney Hall Hotel in the Peak District.    We are advising the Joint Administrators, Ian Walker and Julie Palmer of Begbies Traynor LLP.

Several restaurant chains are exploring company voluntary arrangements in an attempt to reduce rental liabilities.  It is inevitably that the high street will be further reshaped.  City centres too; with outlets reliant on commuting office workers, such as Itsu, Pret and other chains, particularly affected.    It remains to be seen how the VAT cut will affect the viability of many businesses in this sector. In any event, businesses should continue to talk to all key stakeholders, whether landlords, suppliers, funders, staff and contractors to manage expectations and maintain confidence.   Rent reductions or waivers from funders are more likely to be achieved if a discussion is started at an early stage, prior to any accrual of arrears or defaults.

This has been, and will continue to be, a fast changing environment, with business being required to respond quickly to changes, processes and new ways of working and attracting custom. Businesses should be aware of the temporary suspension on landlords asserting their rights and remedies if rent arrears are linked to the pandemic restrictions and also utilise the restructuring options and moratorium introduced by the Corporate Insolvency and Governance Act 2020 as necessary.

 
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