The Treasury should consider Cash Tax Credits to further ease the cash burden on already stretched retail businesses to give them the means of surviving beyond the 4 July reopening date said RSM’s head of Leisure and Hospitality in an open letter to The Chancellor today.
The leading audit, tax and consulting firm believes a further cash boost is urgently needed to ensure all businesses survive long enough to welcome back paying customers, and that without government intervention more businesses will fail in the coming months. The firm’s suggested solution of immediate cash tax credits could offer a working capital lifeline.
RSM partner Paul Newman wrote the following open letter:
The Rt Hon Rishi Sunak MP
Chancellor of the Exchequer
1 Horse Guards Road
2 July 2020
RE: Cash Tax Credits to boost working capital for leisure and hospitality businesses
As head of Leisure and Hospitality at RSM, I have been working hard with my clients during lockdown to help secure Government funding and advise on other Coronavirus related measures, alongside my colleagues. Both personally and professionally I am passionate about the sector. Last week I was heartened to see the easing of social distancing rules and a reopening date for businesses.
Nevertheless, there are still challenges ahead. The leisure and hospitality sector is being tested like never before with operators facing a prolonged period of reduced footfall. As the two-metre rule has now been relaxed, the acid test will be whether consumers have enough confidence and cash to deliver positive cash flow for restaurants and other hospitality businesses once they start to reopen their doors from 4 July.
Reopening comes at no small cost. Businesses are having to physically adapt their premises, provide PPE to staff, create new marketing plans, provide staff training, introduce safety protocols and more, all at a time when cash reserves are already depleted. Add to this the fixed costs of running a closed site during lockdown – principally rent bills accrued since 23 March – and realistically we are looking at a huge wave of administrations in the sector.
The Government’s support over the past few months has been critical in saving many businesses. However, it could all be for nothing if measures are withdrawn at pace in the coming months. Reopening is not just a question of flipping the sign on the door to ‘open’. Operators will be at the mercy of consumer confidence in the UK and globally, which could take months or even years to fully return.
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.
Tax Cash Credits:
From a tax perspective, businesses will treat most of the direct site costs that have built up during closure plus the additional reopening costs as revenue-related deductions. Given the financial plight of most operators, additional deductions will simply enhance a loss and with it, a cash flow benefit at some point in the future – which will simply be too late for many. Similarly, anyexpenditure in reconfiguring site lay outs deemed to be capital in nature will offer no immediate benefit and may just increase any tax loss.
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.
For example, surrendering £100,000 of costs for say a 19% credit would give cash-strapped operators a working capital lifeline of £19,000. The amount of the benefit claimed would be subject to subsequent review/true up as part of the end of year corporation tax return submission. Ultimately, this would not affect the quantum of tax relief achieved but would be an advance of tax relief at a time when it is needed most.
Two months ago, you said you would do whatever it takes to support businesses through this pandemic. Implementing this policy could go some way to keeping that promise. This crisis for the leisure and hospitality sector doesn’t end when lockdown lifts. The impact will continue to play out for months to come and this initiative could be the difference between survival or closure for many operators.
I hope you will consider this proposal for the sector and I welcome any feedback and discussion with the Treasury.
Partner and Head of Leisure and Hospitality
RSM UK Audit LLP