MASTERCLASS: Maximising cashflow in the face of uncertainty

Emma Maile. Haysmacintyre. London. United Kingdom.

We’ve heard from the industry, but now we want to hear from the experts. Emma Maile, director at haysmacintyre explains exactly what the VAT changes mean for boutique hotels and the impact it could have on cashflow.

When hospitality businesses were forced to close in efforts to protect the public from COVID-19, the sector found itself shrouded in uncertainty. Now, with businesses allowed to reopen, many boutique hotels are faced with the new challenges posed by social distancing and consumers wary of potential health risks.

Amidst a seemingly constant flow of new factors and complex guidance to consider, it’s important to be aware of the steps that can be taken to help maximise cashflow. This will involve regular forecasting, but equally ensuring that the most is made of available support. One important consideration is the reduced VAT rate at 5%, in place from 15 July 2020 to 12 January 2021 for certain hospitality or tourism supplies. With complex guidance surrounding it, the changes have been the subject of much confusion, but could bring many benefits if utilised correctly.

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What does the reduced rate include?

For many hotels, this reduced rate provides welcome financial relief: not only does it apply to food and drinks for catering (excluding alcoholic beverages), but to guest accommodation too. What’s more, this lower VAT rate also applies to the standard rated element of the total valuation for long-stay accommodation in hotels, inns and boarding houses, meaning that if you currently apply a 4% effective rate for long-stay accommodation after 28 days, the effective rate changes from 4% to 1%.

Although some businesses might choose to pass these savings to customers, the majority, who require the extra cash, are instead keeping them to help ensure the business’ survival. Managing reputation and attracting business is as crucial as ever, but it is unlikely that customers will expect the VAT cut to be passed on to them – at least not from smaller businesses.

Factoring in deposits

The date a deposit for a room booking is paid normally forms the date when VAT has to be accounted for by the businesses receiving the payment. Therefore, deposits paid before 15 July 2020, will have been subject to VAT at 20%.  

However, special change of rate provisions may apply for reduced VAT from now until 12th  January 2021 for hotel rooms or catering, as long as the actual supply itself takes place between 15th July 2020 and 12th January 2021. Not only would these special provisions allow hotels to apply the 5% rate to both the deposit (already taken) and the balancing payment, but if the deposit had already been accounted for on a VAT inclusive basis, and the price for customers remains unchanged, businesses may be able to receive a 15% refund of the VAT paid. This will not apply to corporate bookings where VAT invoices have been issued, as any VAT saving would have to be passed onto them by issuing a credit note.

For many small hotel businesses, the reduction to VAT will drastically help operators to regain control over their cashflow on a number of services they offer, providing cash-strapped businesses with a welcome boost in these uncertain times. Independent hotels would do well to seek expert guidance on how to ensure they are taking full advantage of the lower rate of VAT.

Tags : financehotelsrevenue
Zoe Monk

The author Zoe Monk

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