Last week the UK Chancellor Rishi Sunak outlined part of a recovery plan for the UK that would benefit the battered Short Term Rental industry and goes into effect today (15 July). Many sectors, including hospitality, will see the VAT be reduced from 20% to 5% until 12 January, 2021 in an effort to boost spending and support local businesses. While this is great news for our industry and partners, before ambitiously ramping up operations and ballooning rates, let’s take a minute to understand its effects and how best 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. 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 15 point decrease in the VAT on all UK homes and cottages should help attract more guests, especially as international travel restrictions lift. 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 £78.7 compared to a two bedroom falling just £23.49 per night. Additionally, Chancellor Sunak’s plan also included 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 six months, we expect a shift in how Agency Managers 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.

2. Stay On Top of Market Trends

No one knows exactly to what extent the UK Government’s plan will work in boosting the hospitality industry, but being the first to pick up and execute on trends in the market will put you in the best spot. Since the announcement, 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. 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. With added uncertainty, knowledge and speed is critically important.

3. Keep Your Calendar Rolling

With a 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 having your calendar open as far into the future as possible to capture the potential surge in demand. While there will be an increase in bookings in this window, we expect an equal slowing of reservations with the VAT reverts to 20 percent, so 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 lowered VAT rest assured that the Beyond Pricing algorithm is your hardest working employee. If certain dates in your market start taking off, our algo will automatically increase the price day or night.

Click here to speak to a Beyond Pricing team member for how we can help you take advantage of this unprecedented change.

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