Time to tax?
Praveen Gupta, national head of tax at Azets talks about the possible reforms in tax and who will bear the burden of the circa £300bn missing from the treasure chest, which is the estimate of the overall public finance cost of COVID according to the Office for Budget Responsibility.
2020 will be remembered for a number of reasons. Like many, we all approached the new decade with renewed enthusiasm, a new Government, further clarity finally on Brexit (more on this later) and then in March, the world changed, and everyone has been impacted, not just locally but globally.
One key ongoing consequence of the virus is the sharp focus on Government spending. The NHS has been a focal point over the past few months, and I would imagine that Government spending in this area will be protected or grow over the next few years. In addition, there is an ageing population, more spending on flood defences and let’s not forget defence as countries like China and Russia increasingly flex their muscles on the world stage.
Clearly, there is a need to raise additional revenues for the exchequer in the short to medium term.
Latest reports show that:
- The UK borrowed £128bn in the quarter to June.
- The deficit of tax receipts over public spending between April and June was £174bn, compared to £20.3bn for the same period in 2019/20.
- The latest Bank of England forecasts indicate that the UK economy will shrink by 9.5% this year.
What changes could there be?
A consequence of the wide range of Government reviews is the expectation of some significant tax reforms that are likely to take place. A number of potential changes have already been suggested, including:
- Higher rates of CGT and changes to allowances, exemptions, reliefs and treatment of losses.
- Speculation that CGT rates will increase to bring them into line with income tax.
- Speculation of wide-ranging changes to the IHT regime, including changes to various reliefs, such as Business Relief, Agricultural Property Relief and the removal of the step up of the value of assets at the time of death.
- The introduction of some form of Wealth tax.
- Speculation that there may be possible changes in the field of VAT/duties, for example will zero rating on construction survive?
With the number of ongoing HMRC reviews, we believe these will create a number of tax changes that will in turn result in the next 6 – 12 months being taxing times for individuals and their businesses as they continue to try and plan their tax affairs in the most efficient manner.
A Budget is likely to take place in October/November of this year and the Chancellor is widely expected to start the process of raising taxes to help continue support their ambitious spending plans. Our expectations are that some changes may be immediate and could include the alignment of the top CGT rate which is currently 28% and the top IT rate which is 45%, aligning the rates would increase the tax charge on most capital gains. Alternatively, odds are there may well be the introduction of new taxes like the Wealth tax and perhaps a form of Digital Sales tax?
Death and taxes - two of life’s certainties
As Benjamin Franklin, famously quoted “but in this world nothing can be said to be certain, except death and taxes” – we find ourselves in a moment where the UK Government may have limited choices but to increase the tax take from both individuals and businesses in the UK. As noted above HMRC currently have a number of ongoing tax reviews which include, the Office of Tax Simplification’s (OTS) recent call for evidence to seek views about CGT, focusing both on the principles underlying the tax, and views on the technical and operational aspects of CGT.
In addition, the Treasury Committee, has launched the ‘Tax after coronavirus’ inquiry to examine what the long term pressures on the UK tax system are and seek evidence on what overall level of taxation the economy can bear, the role of tax reliefs in rebuilding the economy and whether there is a role for windfall taxes. Last year, we also had the OTS review of IHT, together with the All-Party Parliamentary Group review of IHT. Last, but not least, the Institute for Fiscal Studies (IFS) in August 2020 launched an enquiry into the possible introduction of a wealth tax, with a final report expected in December.
Taxed for time? We can help you get ahead
Over the next few weeks, we continue our series of thought leadership articles and webinars which, if you are taxed for time, will provide you with valuable insight.
There is currently a wide debate on the type of recovery the UK will have. On top of this, as we move to the end of the Transition period, it is also widely noted that any recovery will depend on the ongoing impact of the virus and the avoidance of a disruptive Brexit.
At Azets, we strongly believe that planning is essential to ensure that individuals and businesses are fully briefed on key changes and how they may be impacted as a result. We also know how important it is to have certainty regarding the tax you pay and our national tax experts, based locally to you, are on hand to provide support through the taxing times that are certainly ahead of us.
Praveen Gupta, National Head of Tax at Azets, international accounting, tax, audit, advisory and business services group.