The Government’s measures to help businesses and individuals during the lockdown have been well-received by businesses, but nothing comes for free.
As the country begins a slow return to work, attention must turn to how we pay the nation’s sick bill.
The UK Budget deficit will rise to £300bn, according to the OBR, and something will need to be done about it once the pandemic is over.
It is highly likely that more tax revenue will need to be collected to pay off the deficit – exactly how this will happen, and how soon, remains to be seen.
- Tax thresholds may change
- It could result in radical reforms
- It will require a careful balance of taxes and incentives
Accountants share their views of what the government might do to increase tax revenues once the pandemic is over.
Tax rates won’t change – but thresholds will
Barrie Dowsett, CEO, Myriad Associates
We have to recover this money from somewhere. But the Conservative manifesto has made it very difficult for the Government.
They promised not to increase VAT or National Insurance, so I think they will try to change the thresholds. The wealthy will probably end up paying more towards the deficit we’ve created.
The self-employed have been supported through this pandemic. It’s possible that the government will say that they have to give something back.
The difference in National Insurance rates between the self-employed and employed workers will get much narrower. They’ve tried it before and it didn’t work, but I think there is more appetite for that, now. The National Insurance rate is certainly an opportunity for them.
I think the measures they take will target the higher earners – high net worth individuals. They will do that not by increasing the rates, but by moving the thresholds so that more people qualify for the highest rate, and they wouldn’t give any more allowances at the bottom end.
I think it will be tiny steps at first so we’ll ease out of this crisis. But I think it will start to ramp up about 12 months afterwards.
Next steps: Keep an eye on announcements, make sure clients are aware of all the incentives available to them.
Verdict: The government will look for ways to tax high earners – possibly by moving tax thresholds.
AAT Opinion: what are the Government’s options to pay for coronavirus?Borrowing could hit £300bn and unemployment 5 milliion. So how does the Chancellor plot a course out of the recession?
This is an opportunity for radical changes to the system
Anonymous tax adviser
Potentially, there is a political appetite to do some quite radical stuff and do a reset of the system.
Personally, I don’t think that will mean drastic simplification of taxes. I don’t really buy the idea that tax is too complicated, even though people say that if you lined up the tax legislation on a shelf it would be three feet long. I don’t think that’s the issue.
Complexity for the average person is about how hard it is for to deal with HMRC. They don’t care that the latest Finance Bill has 365 new pages of tax on it. We could certainly tackle some of the unfairness we see, such as the loan charge, self-employed off-payroll contractors, stuff like that.
Certainly the off-payroll stuff is driven by this fundamental difference in our system between how we tax the employed and the self-employed, so that’s something that can be fixed. I know that they have tried very modestly to close the gap and had to do an immediate U-turn. I think there is much more possibility for radical change now. Even though they are viewed as being a right-wing government, it is actually quite radical in itself.
Next steps: Watch for changes, and determine any impacts it might have on clients.
Verdict: We may see some quite bold announcements from government once the pandemic is over.
Any changes that come in will need balance
Rob Mander, tax consultant, RSM International
We need to have a framework of measures that encourage productive investment and consumption. I don’t think it’s as simple as lower corporate tax rates mean more money for companies to invest and higher tax rates mean governments have more money in their pockets.
I don’t think that there’s a linear answer here; if you look at, say, the digital economy, it’s easier to bash up the big digital companies, they’re an easy target. But at the same time, we’ve got to incentivise new digital businesses to set up which to me, is a combination of the right innovation and R&D framework.
We could explore the right support around what I would call your gig workers and casual employees. That might mean things like employee share schemes, maybe tax concessions for co-funding projects with either big business or government so you look around where the growth opportunity is and say how we incentivise it.
Next steps: Monitor suggested changes and get involved in consultations.
Verdict: Taxes will go up, but it needs to be balanced with incentives and needs some thought.
Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.