Steps hotel owners can take to limit the impact of coronavirus
No matter how big or small, all hoteliers across the nation are feeling the impact of the coronavirus (Covid-19) crisis, and the lingering uncertainty on the duration and extent of the outbreak means that a return to normality is out of sight.
With the country in lockdown, independents and chains are ensuring that they have the smoothest business journey possible – from urgently reviewing their contingency plans through to how best to deal with suppliers and other creditors. Relief is now available for businesses within the industry, and hotel owners need to consider obtaining the relief in order to navigate through this uncertain period.
Paul Smith, a Managing Director specialising in Restructuring Advisory at consulting firm Duff & Phelps, outlines four steps that hotel owners can take to limit the business impact of the coronavirus:
Coronavirus job retention scheme
On Friday 20 March, the government announced it would provide grants to cover 80% of the salary of PAYE employees who have been laid off as a result of the crisis. It is backdated to 1 March and is expected to be up and running in April. It is anticipated to last for three months.
To qualify, employers need to identify employees affected and advise them of a change of status to ‘furloughed workers.’ Once the information has been submitted to HM Revenue & Customs (HMRC), it will reimburse 80% of that employee’s wage up to a cap of £2,500 per month.
While this innovative scheme aims to support businesses and the broader economy by not making people redundant, it does assume that a hotel or leisure business has enough cash in the bank to continue to pay the remaining 20% of salaries to those furloughed employees.
There is no doubt that many in the sector will do what they can to retain skilled employees on the payroll for when the current circumstances change, and the market takes off again.
Changes in HMRC “Time To Pay” arrangements
Hotel owners also need to take advantage of the recent expansion of HMRC’s Time To Pay (TTP) scheme. A TTP arrangement is a structured payment plan for any outstanding tax obligations, allowing businesses and the self-employed to defer tax payments over an agreed period of time.
The changes outlined in the Budget offer businesses more generous payment terms, with firms now having more time to pay VAT, payroll taxes and corporation tax. The government has also launched a Coronavirus Business Payments Support Service to help businesses in arrears with existing tax liabilities up to circa £100,000. Larger liabilities are expected to be dealt with on a case-by-case basis. Additionally, a dedicated helpline has been set up to support businesses that are concerned about not being able to pay their tax due to the financial impacts of Covid-19.
In addition, the Chancellor has announced that all VAT liabilities due from 20 March to 30 June 2020 will be postponed. VAT refunds and reclaims will be paid by HMRC as normal. Taxpayers will have until the end of the 2020/21 tax year to pay any liabilities accumulated during the deferral period.
For finance directors, support through the taxation system, grants and financial mechanisms will become crucial tools if organisations or clients are struggling to generate enough cash to meet operational costs. A well organised and structured TTP arrangement, alongside the VAT support provided, can be a key component of a successful turnaround plan that ensures cash flow and safeguards jobs.
Communicate with banks
A further option that should be considered is communicating with banks and taking advantage of the numerous packages they are putting together to support businesses, particularly for those in the small and medium-sized enterprises and mid-market.
The government has also launched the Coronavirus Business Interruption Loan Scheme which has replaced the existing Enterprise Finance Guarantee loan scheme, to support long-term viable businesses who need additional finance for cash flow issues.
Business rates and grants
In the Budget it was announced that retail, hospitality and leisure firms with a rateable value of less than £51,000 will not be paying business rates this year. The Chancellor has now gone one step further by providing an additional cash grant of up to £25,000 per business.
The hotel sector is set to face a very challenging few months, with income and revenue severely hit by the widespread travel restrictions in place, both across the UK and worldwide. The challenge now for government is the speed at which many of these schemes are implemented and rolled out, and how they reach UK businesses facing imminent cash flow difficulties. Failure to do so may mean companies may have to look at more formal insolvency options.
