“There’s no such thing as a free lunch” was used by the famous economist Milton Friedman as a title for one of his books on free market economics and aptly sprang to mind when hearing of the “Eat Out to Help Out” scheme today! The scheme is very much aimed at reigniting demand in the casual dining sector and will subsidise food bills for those that dine out Monday to Wednesday in August, giving up to 50% off the bill, capped at £10 per head including children. To take advantage of this, businesses will need to register for the scheme prior to offering the discount and then claim back the cash with a promise of such a claim being paid within five business days. The discount excludes alcohol and doesn’t apply to take-away meals, even if from a restaurant. Perhaps there is such a thing as a free lunch after all?! We will wait for the Autumn Statement to find out if that’s true but for now it is going to be a welcome push to get customers back dining out in the quieter part of the week.
As a further help to support the tourism and hospitality sectors, the Chancellor also announced a temporary VAT rate cut. For the next six months (the change is effective between 15 July 2020 to 12 January 2021), the VAT rate will be reduced from 20% to 5% for the following supplies:
- Food and beverages (excluding alcoholic drinks) in cafes, pubs, bars, restaurants and similar establishments
- Admission to tourist attractions
Businesses will have to decide whether to pass on the saving to customers by reducing prices or to keep current prices and retain the 15% to help toward covering their costs. This is likely to be decided by market rates and whether they want a competitive edge. It will also be important for businesses to consider the impact of these changes on their VAT accounting systems, namely the ability for software to cope with different VAT rates and also the impact of the special time of supply rules, particularly for advance payments and bookings.
The government’s hope is that these measures will help to reignite the hospitality industry.