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Chancellor Rishi Sunak announced a raft of measures in his summer statement yesterday aimed at softening the economic impact of the coronavirus. The pandemic has seen a 25% fall in GDP over the past two months, while house prices fell for the first time in eight years, and unemployment continues to rise.
As expected, Sunak is pursuing a policy of recover and rebuild that will see investment prioritised and tax cuts precede any tax rises (pure speculation at this point).
The chancellor confirmed the wind-down of the furlough scheme which will cease at the end of October and introduced a job retention bonus scheme whereby the Government will reward employers with £1,000 for each member of furloughed staff who is brought back to work, on a salary of at least £520 per month, and retained until January 2021. Additional money has also been set aside for skills, training and apprenticeships, investment earmarked for public infrastructure and stamp duty has been dropped on all home purchases up to the value of £500,000 until 31 March 2021 in a bid to shore up the housing market.
VAT slashed
One of the most hotly anticipated moves was the cut to VAT. Effective from 15 July to 12 January 2021, VAT will be reduced to 5% across the hospitality industry. The £4bn investment will enable those businesses offering food, non-alcoholic drinks, accommodation, or tourist attractions to benefit from the lower rate.
From a technological perspective, businesses will have to ensure they implement the change within their ERP systems and source data going forward, with the correct rate applied to the relevant time period. Retail businesses will also need to ensure their point of sale (POS) systems reflect the change.
Transactions and calculations in respect of these supplies falling on or after 15 July will need to be treated differently from those previously and inputted with the right rate. The change in rate could also lead to potential errors so finance teams will need to be vigilant when checking source data prior to processing their submissions.
Using a fully integrated compliance platform, such as AlphaVAT, will help to mitigate errors that could occur as a result of such changes by enforcing digital linking and providing further assurance through data analytics, giving you visibility over your data.
Future considerations
The stimulus packages outlined in the summer statement will be bankrolled by growing national debt and tax expenditure. As the government continues to seek to avoid a prolonged recession, we can expect further legislative change to be on the cards, which is why the business needs to be able to respond and quickly implement any changes.
With rapid change comes an increase in the likelihood of error. There will now be more pressure on businesses to get their Returns right, particularly given that they will want to avoid the risk of audits and penalties.
Keeping pace with tax legislation will prove challenging for many, necessitating investment in systems that can then do the heavy lifting for them. This is one of the reasons why tax professionals are already reporting an uptick in investment, with 65.5% recently stating adoption of tax technology has accelerated.
Being agile enough to respond to changing demands will be vital as businesses seek to emerge from the COVID-19 crisis. Agility will enable tax and finance team professionals to spend more time on broader business strategy and less time on compliance tasks, in turn providing the business with actionable insights to help them successfully recover from the crisis.
Focusing on the transformation of the tax function will help businesses to adapt more readily as and when changes are made but will also ensure more efficient use of resource and effective management of cashflow, resulting in the resilience needed to weather the crisis.
