With traditional work-related festive celebrations looking uncertain, cashflow management will be critical, writes Wylie & Bisset partner Catherine Livingstone
The co-ordinated removal of a number of schemes established to help the licensed trade cope with the difficulties presented by the COVID pandemic over the last 18 months will present many licensees with a challenging winter ahead.
It was in July 2020 that the UK Government introduced a temporary reduced rate of 5% VAT on certain supplies in the licensed trade to help protect business and jobs. Initially planned to last until January this year, but since extended, a new reduced rate of 12.5% takes effect from the start of October until next March, when the standard 20% rate of VAT will again apply.
Given that, aside from the biggest hospitality operators which passed on the VAT reduction to customers, most licensees retained their prices so that the VAT reduction enabled them to make a real saving and to remain in business, the impact of VAT rising from 5% to 12.5% on their cashflow will be significant.
And given that this rise in VAT coincides with the culmination of the furlough scheme – not to mention that bounce back loans are now starting to be repaid, together with any deferred VAT – many licensees look likely to experience an immediate strain on their cashflow.
With the much-heralded staycation-fuelled bumper summer season having failed to materialise for many, licensees are left confronting a downturn in trade over the autumn and winter months with extra debt. That will mean that many licensees will have some difficult questions to ask themselves about the ongoing viability of their operations.
In particular, many city centre bars and restaurants are feeling the impact of hybrid working, with many employees working from home rather than frequenting restaurants and pubs throughout the working week. And with the traditional work-related festive celebrations looking decidedly uncertain – cashflow management will be critical to the survival of many city centre operators.
With many licensees facing the prospect of a winter of discontent, they would be advised to reflect on what lessons have been learned over the course of the last 18 months to help them going forward with a more robust business model – for example by diversification, such as those entrepreneurial restaurateurs who established takeaway operations alongside their traditional offerings.
But whatever shape your business takes going forward – what will remain constant is the fact that cashflow is critical. Will you have enough money in the bank to pay the bills? That’s the bottom line.
- Catherine Livingstone is a partner and head of the business advisory services team at Wylie & Bisset