Tax increases

Published September 2020

The press over the last few days has been full of suggestions that taxes are due to rise, and naturally we have clients who are concerned about what they should do.

I see that somehow Covid support has to be paid for.

I recognise that up until now we need have been able to pay for that through printing money – “Quantitative Easing”, but that cannot go on indefinitely.

However, we most definitely do not need uncertainty about what taxes will rise (if any). And we do not need to threaten growth by tax rises.

What do I say to clients?... there is nothing that we can usefully do beyond the planning that is already in place. We have our cards and we are busy playing them for the game we are in but if the game changes then we can only advise how to play them for the new rules when we have them.

The big exception to that is business sale planning, where we have been predicting Capital Gains Tax changes for a few years. They have already started, and more are expected, but that horse may already, now, have bolted.

Uncertainty

As of yesterday (1 September 2020), The furlough scheme has started to be unwound. Government support drops from 80% to 70% (60% in October), with employers making up the difference. Employers are now paying NIC. After 31 October it disappears, and the Chancellor is insistent that it will not be extended.

There is though the ‘bonus’ if you keep previously furloughed employees until February.

I agree with the unwinding. But if you are running a business and making decisions about redundancies, do you really want to have the potential threat of an increase in Corporation Tax to factor in as well? I suggest not.

It is frankly silly and should be dealt with one way, or another, promptly so that decision makers can focus on the affordability of keeping jobs in place if they can.

Growth

Increases in taxes will need to happen at some stage. With borrowing of £2trn, something has to give. Interest rates are though historically low, and likely to stay so for a long time. Borrowing needs to be dealt with at some stage but not through tax rises nor austerity, now, in my view.

I question the decision to raise Capital Gains Tax rates to the levels of Income Tax. Business owners who have spent years growing businesses, paying personal tax and Corporation Tax on earned income, as well as collecting NIC through employing staff will be hit hard by being taxed, again, on unearned income.

Corporation tax increases will hinder not promote growth.

Attacking the pensions triple lock and increasing fuel duty (other suggestions that are being mooted) will not help those who are already struggling.

After a late March lockdown, recovery (if you can call it that after just a few month) only started in May. Some businesses will not start to recover until the end of the year, especially those in or connected with, hospitality. The end of the year though is when I fear that business failures will start to increase.

It is on the way out of a recession rather than its low point when things get worst for businesses. Debt servicing and repayments start to bite. Suppliers need to be paid as do employees. Customers may delay paying. Some sectors even such as hospitality are a long way from heading out of recession.

Anything that challenges growth, such as tax increases is foolish.