Hotels, Restaurants, Bars and Pubs: Tax implications in the ‘new normal’

Hotels, Restaurants, Bars and Pubs: Tax implications in the ‘new normal’

Andy Hamman, Director, Employment Tax
Hotels, Restaurants, Bars and Pubs: Tax implications in the ‘new normal’
Changes remain ongoing and ever evolving regarding devolved lockdowns closing times, the extent of meals taken, face coverings, tier systems and now Christmas.

Whereas not so many weeks ago it felt like a sense of normality was slowly returning to the hospitality sector, we are now endured varying degrees of lockdowns and restrictions depending on where you are in the UK, with all these measures designed to intercept perceived further waves of coronavirus. 

Below we have set out some topical areas of taxation that businesses need to consider. 

Service Charge, Tips and Troncs

It is likely that any historic arrangements for dealing with service charge and tips may need revising. Existing tronc arrangements may no longer work against new operating models and indeed, previous troncmasters may no longer be in employment.

A repetitive back and forth into lockdown is likely to carry with it a significant reduction in customer gratuities, which ordinarily staff would rely upon in addition to their wages. In particular, hotel staff may find that they are returning to work but due to reduced occupancy levels, tronc funds are likely to be minimal if not non-existent.

We have the expertise to support and advise operators on the review, revision and tailoring of tronc arrangements to reflect the current circumstances and, importantly, to also ensure that once business does start to return to normality, arrangements remain flexible and can adapt.

Coronavirus Job Retention Scheme (CJRS)

Intended to close on 31 October 2020, the CJRS has been extended until 31 March 2021 (with a review scheduled for January 2021). The extended CJRS will operate on the same basis as the original scheme did in August 2020, allowing for flexible working/furlough. Employers can claim 80% of non-working wages but must fund associated Employers NICs and pension costs themselves. Any hours worked must be paid at the full contractual rate. The extended scheme is open to employees employed on 30/10/20 and on a Real Time Information (RTI) submission between 20 March 2020 and 30 October 2020. Full details can be found here

The government estimates that up to £3.5 billion has been paid out as a result of fraudulent claims or by claims in error and HMRC is now looking into 27,000 'high risk' cases where they believe a serious error has been made by employers. If investigated by HMRC and fraud discovered, monies will be repayable plus up to a 100% penalty.

As of 15 September 2020, some 80,000 employers have repaid nearly £215 million to HMRC that was claimed in error

Accordingly, we recommend that any employer that has claimed under the CJRS, undertakes suitable checks to scrutinise past claims to ensure proactive compliance. Find more information on our insight 'Furlough claims'.

Job Support Scheme (JSS)

The JSS was far less generous that the CJRS extension:

  • JSS Open – employees working at least 20% of their normal hours; claim 61.67% of wage costs for hours not worked, up to a total grant cap of £1,541.75 per month
  • JSS Closed – those forced to close (say in Tier 3) could claim 66.67% of employee’s wages, up to a total grant cap of £2083.44 per month

The CJRS extension has resulted in the government postponing the start of the JSS. The JSS is likely to continue after the CJRS ends on 31 March 2021.The government will confirm this nearer the time.

Job Retention Bonus (JRB)

The JRB was planned to be payable 15 February 2021.The grant was to be a £1,000 one-off taxable payment to the employer, for each eligible employee furloughed and kept continuously employed until 31 January 2021.The extension to the CJRS has led to the cancellation of the JRB. The government will redeploy a retention incentive at the appropriate time, but no details are currently available.


Financial stress on operators will inevitably lead to redundancies. 

Some employers are already commencing consultation periods with their teams.

Additionally, lessons need to be learned from the financial crisis back in 2008, when employers had to make redundancies when trying to manage through the recession. We saw from this that a large number of employers did not apply the correct tax and National Insurance Contributions (NICs) treatment to their termination payments with HMRC enquiries as a result.

While redundancies are predominantly an employment law issue, the several changes to the income tax and NICs treatment of termination payments over recent years mean that special attention should be paid to ensure the tax and NICs position is correct.

Read our insight on the tax implications of redundancies for more information.

The hospitality industry has been benefitting from a reduced 5% rate of VAT since 15 July 2020.  This was introduced as part of the Chancellor’s summer statement and will have effect until 12 January 2021.

The reduced rate is applicable to several different areas. Firstly, the supply of sleeping accommodation in hotels can be subject to the reduced rate. This rate applies to all stays which take place in the period. It also applies to payments received during the period which are for stays from 13 January 2021 onwards.  

This allows for those booking next summer holidays to also enjoy the reduced rate of VAT, which may be helpful to hotelier’s promotional plans. However, the 5% rate will not apply if just a booking is made with payment deferred to the date of stay. In that case the stay would revert to the 20% rate.

The second area to benefit is that of catering. The 5% rate has been applied to:

  • supplies of food and non-alcoholic beverages for consumption on premises; and
  • hot takeaway food and hot takeaway non-alcoholic drinks.

The key point to note on the above is that alcohol (a drink containing more than 1.2% ABV) is excluded from the reduced rate of VAT, it remains at 20%. Additionally, when getting a takeaway only hot drinks benefit from the lower rate of VAT. This means that cold drinks, such as a can of Coke or a milkshake, stay subject to the standard rate.

Those in the trade will need to make sure that they have sufficient controls in place to manage this change and make sure that the correct amount of VAT is being accounted for. This will be particularly important where orders are taken which include items subject to both rates (i.e. a take away coffee and cold sandwich).

As a final point to note, the ‘Eat out to Help out’ scheme may be over but many businesses will not have yet submitted VAT returns which cover that time period. Care needs to be taken on calculating the VAT due for sales made under this scheme. Whilst the 5% rate will apply to relevant items, it is necessary to calculate the VAT by reference to the total undiscounted bill amount. Again, this will make it very important to keep good records and have sufficient controls to ensure VAT is not inadvertently under declared. 

Corporation Tax
With many companies expected to report a financial loss in 2020, there may be an opportunity to claim a repayment of the 2019 Corporation Tax liability earlier than usual. This provides a potential cashflow benefit as tax refunds can be accelerated and a potential claim should be considered as part of the overall tax payment strategy of the company.

Normally a company would have to wait until the statutory accounts have been finalised and submitted to Companies House and the final tax return to be completed, signed and submitted before a loss carry-back claim to the previous financial year can be made.  However, there is an alternative temporary measure in place

In broad terms, where a company can demonstrate to HMRC that it is expecting to make substantial losses in 2020, the loss carry-back claim can be submitted earlier, before the relevant 2020 accounts have been finalised. The claim can be made during the current 2020 financial year; there is no need to wait for the year-end to pass.  

Companies will be expected to provide HMRC with full evidence to support such claims and it varies on a case by case basis. This option is available for companies of all sizes.
Clearly there is a great deal for operators to consider as we approach the end of the year.  At this time compliance is key to ensure that valuable funds do not have to be spent on penalties or interest on tax wrongly calculated, and that no available opportunities to claim relief are missed. 

For more information on what your hospitality business should be considering at the moment, contact Andy Hamman or your usual Crowe contact.

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Stacy Eden
Stacy Eden
Partner, Head of Property and Construction