UK Government’s Summer Statement Introduces Temporary Vat And Stamp Duty Reductions

Shearman & Sterling LLP

Shearman & Sterling LLP

Job Protection Package Includes VAT Change in COVID-19-Affected Sectors and Stamp Duty Relief For Residential Property 

On 8 July 2020, the U.K. Chancellor of the Exchequer delivered a Summer Statement setting out the U.K. Government’s “Plan For Jobs”, a package of measures intended to protect jobs and provide relief to sectors particularly hard-hit by COVID-19. The tax measures include cuts to VAT for the hospitality and tourism sectors and a temporary extension of the stamp duty land tax (SDLT) nil-rate band for purchases of residential property in order to stimulate the U.K. housing market. There were also incentives to employers to create and retain jobs, particularly for 16–24 year olds at risk of long-term unemployment.

The rate of VAT on supplies of food and non-alcoholic drinks purchased from restaurants, pubs and similar premises, as well as supplies of accommodation and admission to U.K. attractions, will be changed from the standard rate of 20% to the reduced rate of 5% from 15 July 2020 to 12 January 2021. In addition for the hospitality sector, the Government will introduce an “Eat Out to Help Out” scheme under which it will fund a 50% discount, capped at £10 per head, for each diner eating at premises participating in the scheme, but only from Monday to Wednesday during August 2020.

The Chancellor confirmed the Government’s intention to wind down the furlough or “Coronavirus Job Retention Scheme” so that it will end in October (under the scheme, the Government provides grants to employers covering some of the wages of furloughed workers). Instead, the Government will introduce a Job Retention Bonus. This is a one-off payment to employers of £1,000 for each employee who is employed continuously until the end of January 2021 and is paid a minimum of £520 a month.

Measures were also announced with a view to job creation, particularly for younger people. Between 1 August 2020 and 31 January 2021, employers hiring apprentices under the age of 25 can benefit from a payment of £2,000 per apprentice (in addition to the existing £1,000 incentive provided for 16-18 year old apprentices) and £1,500 per apprentice aged 25 or over, and a separate payment of £1,000 is available to firms offering traineeships. In addition, a £2 billion “Kickstart Scheme”, designed to create work placements for 16-24 year olds at risk of long-term unemployment, can be drawn on by businesses to cover the cost of the national minimum wage for a 25-hour working week plus related social security costs.

Having noted that the U.K. housing market has seen a 50% year-on-year reduction in transactions and a first annual fall in prices for eight years, the Chancellor announced that the nil-rate band of SDLT for residential property sales in England and Northern Ireland will be increased from £125,000 to £500,000 between 8 July 2020 and 31 March 2021. This generally means no SDLT will apply to residential house purchases by an individual for up to £500,000 during the window, and with a commensurate £15,000 reduction in the SDLT charge for residential house purchases above the nil-rate band.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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