This week, UK Chancellor Rishi Sunak announced that several components of the recovery plan outlined last July will maintain in effect, with two major pieces that will have a direct effect on short-term rentals.

First, hospitality and leisure businesses won’t have to pay business rates for three months, then rates will be discounted for the remaining nine months of the year by two-thirds. This is the equivalent of a £6bn tax cut.

Second, the 5% reduced rate of VAT will be extended until the end of September 2021. It will then gradually increase to 12.5% for six months before returning to the standard 20% rate in April 2022. This cut, the Chancellor explained, is worth about £5bn.

We revisited and revised some of our recommendations from last summer to take into account this new information. Here’s what you need to know before you make moves to adapt your pricing strategy.

How Can I Benefit?

Knowing who will benefit from this is just as important as knowing how much they will benefit. The lower VAT doesn’t necessarily mean guests’ invoices will drop by 15 percent. Those Agency Managers that have taxes and fees as a single combined line item, such as with SuperControl, are able to offset the VAT reduction with a proportional increase in rental rate or fees, allowing them to benefit from higher nightly rates. While it may seem like an obvious course of action, not all Agency Managers will be doing this, making it vital to watch what your competition is doing.

What Should I Expect?

The continued 15-point decrease in the VAT on all UK homes and cottages should continue to help attract more guests, especially as international travel restrictions are lifted and vaccine rollout continues apace. As this short-term stimulus is a percentage decrease and not a fixed GBP amount, it will lower the total costs of larger and more luxurious listings even more.

The average six-bedroom in Cornwall will drop by £78.70 compared to a two-bedroom falling just £23.49 per night. Additionally, Chancellor Sunak’s plan continues to include incentives for restaurants - so those listings near culinary centres and urban areas may see a higher relative increase in demand.

Four Ways to Maximise the VAT Reduction

1. Consider Your Collection Policy

Given the VAT decrease is set to last only until September of this year, we expect Agency Managers to continue to collect payments for reservations to align with when the bookings are made versus just prior to the stay date.  Guests will want to be sure to take advantage of lower rates, and the Agency Managers will also be incentivised to collect at booking time as well.

However, given these shifting dynamics, we suggest watching out for guests who have booked and paid at the higher VAT but will now cancel and then re-reserve at a lower rate, especially given more lax cancellation policies that have gone into effect.

Since the announcement last year, Beyond Pricing's UK customers have already been able to quickly re-assess their rates and add desired increases by simply changing the base price for listings. We continue to recommend doing this as a vital part of your pricing strategy.

Additionally, with hyper-local data on market developments, a complete suite of tools to analyse your portfolio, and individual listing “health scores” and rankings, Beyond Pricing Agency Managers are ready to make pointed and direct pricing changes as the market adapts.

3. Keep Your Calendar Rolling

With a new six-month window for making a reservation with lower VAT, guests will most likely be booking all their future trips to capitalise on this time period beyond the six-month window. This means that you should continue to have your calendar open as far into the future as possible to capture the potential surge in demand.

While you can reasonably expect an increase in bookings in this window, we also expect an equal slowing of reservations when the VAT begins to creep back up. Attracting guests now isn’t just a bonus, it's a business necessity. We know opening pricing that far out can be stressful, but with Beyond Pricing's rolling calendar that automatically picks up on seasonal trends and events, we can get the right price even 18 months into the future.

For added security, Beyond Pricing customers always have the option to add an automatic premium to your rates into the future, ensuring you never get a booking too low.

4. Take Advantage of Our Pricing Tool

Lastly, as this market adapts to the continuation of a lowered VAT, rest assured that the Beyond Pricing algorithm is your hardest working employee. If certain dates in your market start taking off, it will automatically increase the price day or night.

Not sure how to adjust your prices to get the best return? Don’t hesitate to reach out to your Customer Success Team or email us at support@beyondpricing.com.

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