Summer Economic Update response: Chancellor's creative measures welcome, but Cash Tax Credits would offer an immediate working capital boost, says RSM

Whilst RSM welcomes the admirable creativity shown by The Chancellor in supporting the leisure and hospitality sector, alternative and more sustained measures will be required to support businesses beyond the summer.

Paul Newman, partner and head of Leisure and Hospitality at RSM, comments:

‘The Chancellor is nothing if not creative. Today’s announcement by the Chancellor of a cut in VAT from 20 per cent to 5 per cent for the next six months, alongside the “eat out to help out” initiative for August will be hugely welcomed by the sector. But by themselves, these measures don’t address the immediate working capital needs of businesses.

‘After the extraordinary effort to re-open pubs and restaurants on Saturday, the reality is that it was a disappointing weekend of sales for almost everyone. Combine this with the additional costs of reopening and the ongoing costs to ensure businesses remain Covid-compliant and operators will be looking at significant losses over the next few weeks.

‘As I said in my recent open letter to the Chancellor, the crisis facing the leisure and hospitality sector hasn’t ended just because doors have reopened. Trading will continue to be depressed for many months to come in what will be a long road back and many won’t make it. Today’s stimulus package will help but I urge the Chancellor to also look at cash tax credits as a further boost for operators in the sector.

‘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. How could this help loss-making businesses? As part of these measures, any loss-making business would ring-fence all site-specific expenditure incurred between 23 March and reopening, without having to distinguish between capital and revenue, and surrender any associated tax reliefs currently available in exchange for an immediate cash tax credit rather than carry forward for future use.