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Hotels will have to prove their owners and directors have cut their salaries, and promise not to pay out dividends to shareholders, in order to access a new taxpayer-funded covid support scheme.
With tourism devastated by the pandemic, the hospitality sector has taken a significant hit.
Jersey had around 730,000 fewer arrivals at the airport and harbour between January and September 2020 compared to the previous year, a 76% decrease.
While the hotels and other accommodation providers have limped along thanks to staycation-ing islanders, they are still facing significant losses over the Christmas period, exacerbated by the cancellations of Christmas parties and events due to new restrictions that will see formal indoor gatherings reduced to a maximum of 20 people from tomorrow.
Pictured: The industry is expected to suffer further due to Christmas event cancellations.
To plug that funding gap, the Government announced a Visitor Accommodation Support Scheme (VASS) on Monday. Structured as a room subsidy, the scheme aims to provide support of up to 80% of fixed costs, paid on a monthly basis in arrears, covering October 2020 to April 2021. Fixed costs can include everything from uniforms to liquor licence fees and pest control.
Standard accommodation will be entitled to £10 per room per night, while four or five star establishments will get £12.50. Both will have a minimum monthly subsidy of £3,000.
But to be able to access it, they’ll have to agree to a number of conditions.
Firstly, the hotel or accommodation provider will have to show that they have suffered at least a 50% drop in turnover - then owners or directors will have to show they've taken some of the hit.
According to the official guidelines, bosses will have to prove that they have “considered all alternative options available” and declare that they have “reviewed and appropriately reduced director salaries” before applying to the scheme.
Pictured: Hotel owners and/or directors will have to prove they've taken a salary cut before applying to the scheme.
They’ll also have to pledge not to increase owner or directors' pay or pay out dividends while they are still signed up to VASS.
All income - including from restaurants and bar takings - must be included in their detriment calculations, and applicants will also have to present their accounts to the Government’s auditors.
Accommodation providers must also prove that they are definitely a “going concern.”
If the business closes down or sells its property within three years of receiving a VASS payment, the Government’s terms and conditions stipulate that they’ll have to give the money back.
The move to make hospitality bosses take a salary cut and agree not to pay out dividends before accessing the scheme, looks like an attempt to distance it from the controversy associated with the UK Government's recent bid to protect supermarkets.
Having been given a tax break worth £1.9bn to protect their future, the 'big four' - ASDA, Sainsbury's, Tesco and Morrisons - were still found to have dished out huge dividends. They're now facing calls from MPs to give that money back.
Detriment is calculated by comparing 2019 turnover to the turnover of the business in the last 12 months up to and including the month claimed for.
For example, if turnover in 2019 was £100,000 and turnover in the last 12 months up to and including the month of claim is £40,000 then 60% detriment has been suffered. That means the detriment test has been met.
If turnover for the last 12 months up to and including the month of claim was £60,000, then 40% detriment has been suffered. In this case, the detriment test has not been met.
If the detriment test is met, here's how the payments are calculated...
If 3* hotel has 50 rooms and the detriment test is met then amount payable for October (31 days) is:
50 (rooms) x £10 (subsidy for 3*) = £500 x 31 (days in October) = £15,500
If fixed costs for the month of October are £10,000 then the 80% cap operates to mean that; £8,000 is payable
If fixed costs for the month of October are £20,000 the 80% cap of fixed costs is not reached as 80% of £20,000 is £16,000; the full subsidy of £15,500 is payable.
If a 4* or 5* hotel has 100 rooms and the detriment test is met then the amount payable for October (31 days) is:
100 (rooms) x £12.50 (subsidy for 4&5*) = £1,250 x 31 (days in October) = £38,750 The 80% cap on fixed costs also applies.
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