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U.K. Treasury Cuts Stamp Duty and VAT in ‘Plan for Jobs’

Posted on July 9, 2020

U.K. Chancellor of the Exchequer Rishi Sunak announced an immediate cut in stamp duty and temporary, targeted VAT cuts as he unveiled a plan to “protect, support, and create jobs” in the wake of COVID-19.

The new "Plan for Jobs" will reward employers who successfully bring back furloughed staff, and employ them continuously through January 2021, with a new “jobs retention bonus” of £1,000 per employee, Sunak said as he presented a “summer economic update” on July 8. The statement drew a cautious response from business groups and tax professionals.

The coronavirus jobs retention scheme (CJRS) has been central to the government’s economic response to COVID-19. “Furlough has been a lifeline for millions, supporting people and businesses to protect jobs. But it cannot and should not go on forever,” Sunak said.

Sunak confirmed that the CJRS will “wind down, flexibly and gradually,” until it ends on October 31. He argued that “calling for endless extensions” to the CJRS would be irresponsible. Leaving it open forever would give people “false hope that it will always be possible to return to the jobs they had before,” he said. The £1,000 jobs retention bonus will be paid only if the employee is paid at least £520 a month, on average, between November and January. Payments will be made from February 2021.

Three-Point Plan

Sunak outlined a three-point plan to support people to find, create, and protect jobs. A new Kickstart Scheme “will directly pay employers” to create new jobs for 16- to 24-year-olds at risk of long-term unemployment, Sunak said, adding that firms will need to prove that the jobs “are additional.” For a 24-year-old, the grant will be around £6,500. There will be further support for training, apprenticeships, and universal credit claimants, he added.

Initiatives to support job creation will include “historic investment in infrastructure,” a £2 billion green homes grant, and a £3 billion “green jobs plan to save money, cut carbon, and create jobs.”

“Uncertainty abounds” in the housing market, Sunak said. The stamp duty land tax threshold will be increased from £125,000 to £500,000 immediately, and the average bill on a house purchase in England and Northern Ireland will fall by £4,500. HMRC published guidance on the reduced rates, which will apply between July 8 and March 31, 2021.

The third part of the plan will protect jobs in hospitality and tourism. Noting that people are “cautious about going out,” Sunak said the government would not have lifted public health restrictions “if we didn’t think we could do so safely.”

Two new measures will help these sectors, Sunak said. “First, at the moment, VAT on hospitality and tourism is charged at 20 percent. So I’ve decided, for the next six months, to cut VAT on food, accommodation, and attractions. Eat-in or hot takeaway food from restaurants, cafes, and pubs; accommodation in hotels, B&Bs, campsites, and caravan sites; attractions like cinemas, theme parks, and zoos — all these and more will see VAT reduced from [July 15] until January 12, 2021, from 20 percent to 5 percent,” he said.

Finally, a new “eat out to help out” discount will provide 50 percent discounts, worth up to £10 a head, on meals eaten at participating business during August.

“The government is committed to fiscal sustainability and ensuring the long-term health of the public finances [and] will set out further details on its plans for a sustainable and balanced medium-term fiscal policy at the next budget alongside an updated [Office for Budget Responsibility] forecast,” HM Treasury said.

Further details of the policy decisions, and other initiatives announced in recent weeks, were set out in the Treasury’s "Plan for Jobs" document and a July 8 release.

January 2021 ‘a Long Way Off’

The jobs retention bonus “offers something of an off-ramp from the furlough scheme, and firms will certainly be doing all they can to keep people on board,” Jonathan Geldart, director general of the Institute of Directors, said in a statement. “However, with cash so tight now, January may feel like a long way off for some businesses.”

“A VAT cut for food, accommodation, and attraction businesses alongside the ‘eat out to help out’ initiative marks a critical step forward,” said Mike Cherry, national chair of the Federation of Small Businesses. “The Treasury should now assess how it can build on this progress, taking another look at our regressive business rates system once we get to the autumn,” he said, adding that “we need the government to spell out how it will help the newly self-employed and company directors who have once again been overlooked.” (Prior coverage of business rates.)

Russell Nathan, senior partner at chartered accountants HW Fisher, said VAT should be reduced for the hospitality sector for a minimum of two years "to have a lasting impact and bring back confidence."

Andy Chamberlain, director of policy at IPSE, the Association of Independent Professionals and the Self-Employed, noted that Sunak did not mention the self-employed. He urged the chancellor to “introduce a tapered end” to the self-employment income support scheme in order to “address the clear imbalance between employees and the self-employed.”

Chamberlain called on the government to “back those groups, like limited companies and the newly self-employed, who missed out on support during lockdown.” (Prior coverage.)

Sunak should consider providing “cash tax credits” as a further boost for hospitality and leisure businesses, said Paul Newman, partner and head of leisure and hospitality at RSM. “Tax cash credits could be a way to further ease the cash burden on already stretched businesses and give them time to get back up and running,” he said.

‘Jury Is Out’ on Stamp Duty Cut

"We are delighted to see the cut in stamp duty,” said Alex Morton, head of policy at the Centre for Policy Studies, adding that the tax was “one of the most hated and economically damaging taxes.”

But Chris Denning, partner at MHA MacIntyre Hudson, said the “relatively short” time period would give “little opportunity for house builders to use the reduction to inform strategic decisions on construction plans beyond the next nine months.” The stamp duty cut will likely need to be extended to have real economic impact, he argued.

“This cut should help to revive the housing market, but the jury is out on whether it will mostly benefit buyers or sellers. In practice it may simply stabilize prices,” said Marc Selby, chair of the Chartered Institute of Taxation’s Property Taxes Committee.

Land and buildings transaction tax (LBTT) replaced stamp duty land tax in Scotland in 2015, and land transaction tax replaced stamp duty land tax in Wales from April 2018. Joanne Walker, Scottish technical officer at the CIOT, noted that if the Scottish government increased the threshold for its land and buildings transaction tax to £500,000, it would have the effect of “taking the vast majority of currently taxable house sales in Scotland out of LBTT altogether, resulting in a significant reduction in LBTT receipts.”

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