Daily Coronavirus Webinar: business rates and VAT

Our Daily Coronavirus Webinar on 7 April included an economic update from Rain Newton-Smith, as well as a special focus on business rates and VAT. We discussed a wide range of topics, and answered questions from the audience. We heard from:

• Ceri Thomas, Editor and Partner, Tortoise Media
• Rain Newton-Smith, Chief Economist, CBI
• Jerry Schurder, Head of Business Rates, Gerald Eve
• Mark Hammond-Giles, Global VAT/GST Senior Manager, PwC

Overview:

Economic update on the impact of coronavirus

• The crisis started unfolding in China, and then rippled through global supply chains as factories closures in Asia affected the rest of the world. But as the health crisis spread, Europe and the US now finds itself at the epicentre of the crisis, as Asia feels its way to recovery.
• Partial closures across the globe, and the uncertainty of how long this will last, has hit confidence, and financial markets. Many of the major stock market indices fell by 30%, and while some have partially recovered, weak global demand and uncertainty is reflected in oil prices which are now at $20. And the many conversations I’ve had with businesses.
• We’ll likely see a deep and severe global recession – hitting output around the world this quarter. But hopefully V shaped.
• It will test resilience around the world, and despite some coordinated global action, many emerging markets countries as diverse as India, Brazil and in Sub Saharan Africa have much fewer resources to tackle both the health crisis and the impact on their economies.
• But there are signs of hope and for that we need to look to Asia. With factories in China back up to around 75% capacity and the recent PMI survey for China back into positive territory and Europe hopefully follows a few weeks behind, we are likely to see the peak impact of the crisis on the global economy in the near future.

On the UK economy

• In the UK, we’re likely to see a much a faster and deeper decline in output than during the financial crisis. But if we can get policy right, we should see a much faster recovery.
• Therefore, while we don’t expect to see a ‘dismal decade’, we are expecting a really tough few months.
• Business surveys give us an early steer on the extent of disruption. The CBI’s March surveys were at their worst since the financial crisis.
• Economists expect GDP growth to be anything between -1% to -8% in 2020 in the UK, with the bulk of the hit occurring in Q2. A rebound in growth of +2% to +7% is then expected in 2021.
• If we can get policy right, it should be V shaped.

The policy response

• UK Government and the Bank of England have worked in tandem, to do whatever it takes.
• Interest rates cut virtually to 0. The Term Funding Scheme and lower capital requirements making it easier for to lend.
• The Job Retention Scheme grants from local authorities, the CBIL lending scheme – all designed to get businesses back on their feet.
• We’re in constant contact with the Treasury and the Bank of England. They’re also monitoring the CBI’s surveys insight closely.
• So, another important way you can get involved is via our economic surveys, which are now in field.
• The results from our April surveys will be among the first indicators of the economy since the full extent of the coronavirus hit. And we’ve included a few special questions designed with policy markets on the business impact of the coronavirus

Key questions we answered:

1. You talked about the short-term impact of Covid-19, what impact will it have over the long-term?

• This depends on how long the disruption lasts and how well policy works.
• It crucially depends on how we behave as we emerge, do we spend and travel when we come of this or batten down the hatches?
• How many businesses will have shut, or people lost jobs, skills or connections the lasting damage to the supply-side of the economy.
• The long term societal and economic changes could be significant:
  • This could boost our adoption across the board in the UK of digital technologies and innovation. From webinars, to working from home, to communicating with friends and family across spaces.
  • Could help put our environment at the heart of growth. It’s been a brutal shutdown in so many ways but with lower coal production in China to far fewer flights in the UK – it’s vastly improved air quality in cities around our country. It’s a glimpse into what life can be like if we can invest now in renewable energy, energy efficiency and make the transition to a zero-carbon economy - brighter skies, cleaner air, more birds and wildlife in our city centres.

2. What tax measures has the Chancellor taken to offer business support over the past few weeks?

• The Government has introduced two crucially important areas of tax support that together — can help businesses grappling with increased costs, and reduced cash flow:
• First, a 12-month business rates holiday for the leisure, hospitality and retail sectors. And, in what may seem to many a long time ago now, this was announced by the Chancellor as part of his Budget on 11 March 11.
• This matters because firms pay business rates, a tax on the shops and factories and farms, before they make a profit – out of their revenues.
• They have also used eligibility for business rates to target grants to those most in need – small shops and businesses that have had to close their doors – available from local authorities in April. £10k and £25k
• Second, is the option to defer VAT payments due for the first quarter of this year - for all businesses until next year.
• It’s a step that the CBI called for, providing vital financial support to businesses who need the immediate cash flow to keep their business afloat.

On business rates

1. Could you give us an overview of the business rates relief scheme and how it is being implemented?

• The principle is the abolition of any business rates for the entire 2020-21 rate year (1^st April 2020 to 31^st March 2021).
• That applies for most properties under the umbrella terms of hospitality, leisure and retail.
• The government are calling this the expanded retail discount scheme.
• To be entitled to this – a property has to be occupied or to have closed temporarily due to Covid-19, and to be used as a shop, restaurant, café, cinema or music venue for assembly and leisure or as a hotel guest and boarding premises.
• The government have issued detailed guidance to local authorities expanding on these uses. E.g. a petrol filling station, car showrooms, estate agents, betting shops and garden centres etc.
• Assembly and leisure is a wide category including premises such as sports grounds, museums, nightclubs, gyms, casinos etc.
• The guidance also lists property uses within retail which are ineligible: banks, building societies, cash points, bureau de changes, medical services such as osteopaths and vets etc.
• There are some significant gaps in the scheme. E.g. dentists are excluded from the scheme along with airports and the companies supporting them. Car parks, factories and properties vacated before covid-19, which still have to pay empty rates despite being unlettable at this time.

2. What if I have properties in the devolved nations, how does the scheme differ in those?

• Northern Ireland – they have adopted a 3-month holiday for all businesses other than the public sector and utilities.
• Wales – the relief scheme excludes the very largest properties, i.e. those with the rate of values above £500,000 – excludes large superstores and department stores, hotels etc.
• Scotland – they have included airports within their relief scheme and all those providing a handling service to airports. They have reversed what would have been the inflation-linked increase (1.6%) to business rate increase in Scotland.

3. One problem is that the retailers who trade from warehouses do not benefit from the relief. I know a cricket supplies trader, who’s online business has collapsed but does not qualify for relief. The retail hospitality and leisure grant are also problematic because one retailer with a rateable value of £52,000 gets nothing, a large chain with 20 units rated at £50,000 gets 20x£25,000 in grant funding, surely that cannot be fair?

• These are correct observations and the inevitable consequence of the government, to its credit, announcing these significant interventions at a break-neck speed.
• These problems ought to be addressed.

4. For a business that had taken on a one year lease on new premises in March, those new premises are still empty as the orders have disappeared due to the coronavirus outbreak, this business does not fall within the leisure and hospitality bracket, are there any business rates relief for empty properties?

• There are the usual reliefs – 3 months free of rates for most properties – 6 months for warehouse and industrial.
• For properties which have been forced to close under the government’s orders. There is a provision within the legislation that no empty rates are payable if occupation of a property is prohibited by law.
• The relief schemes are effectively operated under a discretion. While the government issues guidance on the operation of the scheme, they also steer local authorities to adopt their own interpretation of the relief scheme. So long as they are broadly following government guidelines, central government will reimburse local authorities for the cost.
• Therefore, if you are a property-type that you believe should be covered by the scheme under the spirit of the policy, you should make an enquiry to your local authority as you may find flexibility.
• Local Government Authority released a list of properties it thought should have been included in the government guidance and are saying to local authorities that they should treat them favourably.

On VAT

1. Moving to VAT, can I ask you to give us more detail on the scope of the VAT deferral scheme and how it works in practice?

• On the scope:
  • The registration level for this scheme is £85k in the UK. If you have taxable supplies of that level, then you have to register for VAT. You can register voluntarily. Once you are registered, you have to charge VAT on 20% on the supplies you make.
  • That VAT then passes throughout the supply chain – i.e. from one supplier to another charging VAT.
  • The VAT you charge from one business to the other is recovered.
  • g. if a company charges a supplier 20% in VAT, that company will then recover that VAT and charge 40% to the next company so you only pay the difference – 20% to HMRC.
  • It is supposed to be a neutral tax on businesses in theory.
• On how the scheme works:
  • On the deferral scheme, the Chancellor’s announcement made clear you can defer VAT for a certain period of time.
  • The deferral element of the scheme is optional. For those businesses in difficulty, this is access to liquidity for them and they will want to consider how and when best to access it.
  • Businesses also should consider whether to utilise this scheme or other government support schemes. This is primarily to do with corporate responsibility considerations.
  • If you want to defer you do not need to tell HMRC. It is a flexible approach.
  • If you want to defer but have direct debits in place, you will need to cancel those. Otherwise, HMRC might automatically try to take the money from your account.
  • The deferral scheme covers payments from the period starting 20^th March 2020 to 30^th June 2020. If you have a payment date (or a due date) which falls between those two dates, you can defer that payment.
  • Once the deferral period is over, that VAT will have to be repaid as normal. There will be no interest or VAT on the period you deferred.
  • An important point is that even during this deferral period, you still have to do your VAT accounting. The administration continues and your VAT returns need to be submitted on time.

2. Does the VAT holiday scheme apply to import payments?

• If you have a payment that relates to a monthly or quarterly VAT return, that is deferred. If you have a payment on account which relates to those VAT returns that can also be deferred.
• The scheme does not cover import VAT or duties and other indirect taxes, it doesn’t cover situations where you may owe money to HMRC because you may have got something wrong.
• It is focused to payments related to VAT returns.
• If anyone has registered for the ‘VAT mini one stop shop’, relating predominantly to digital supplies, those payments cannot be deferred.
• For firms that may find it difficult to make those VAT payments, do not let them bounce as other operational impacts will arise. Get in touch with HMRC who has increased ability to be flexible. The sooner you speak to them, the better.