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Tax after Coronavirus: The Government’s response

The House of Commons Treasury Select Committee released a new report called ‘Tax After Coronavirus’ earlier this year, calling for landmark changes to the United Kingdom’s tax system to coincide with the effect of the pandemic. 

Packed with recommendations for the Government to consider, the 80-page document looked at how the nation could increase tax revenues without stunting economic growth. Some of these agreed recommendations in the report included the following:

  • Taxing Income from Work – Reforming this old, complex system and the interaction of various taxes, with better alignment between Income Tax and National Insurance.
  • Limited Companies – If the tax advantages of self-employment are to be reduced, then the tax advantages of operating through a limited company should too, relative to the taxation of employees.
  • Digital Services Tax – The Committee suggested that more work is necessary in this area, and that it should be examined to see the effect of the current levy on businesses and tax collection.
  • Capital Gains and Inheritance Tax – These forms of taxation should be restructured and balanced with the need that any substantial increase could damage future business investment in the UK, particularly considering Brexit.
  • Retail Sales Tax – There is not enough evidence to support retail sales tax as an alternative to VAT and it could potentially be complicated given trade deals and how other jurisdictions would still charge VAT.
  • Stamp Duty Land Tax – Described as economically inefficient and damaging to the economy and should be treated as a priority area for review so that the Government could set levels to encourage homeownership. 

The Government was given until May to provide an official response to this report and whilst it does not have to act on these recommendations, elements of the recommendations were incorporated into the March Budget by the Chancellor. 

However, the Government has now published its findings to the report in a response to the Treasury Committee.

Within its response, it asserts that it is committed to helping jobs, businesses and livelihoods. As well as this, it pointed to several measures undertaken already to support businesses based on the Committee’s recommendations.

This included extending the carry back rules from one to three years for both incorporated and unincorporated businesses.

Not only this, but the response also suggested creating additional capital allowances in the form of the super deduction and an extended first-year allowance, which it said went beyond the recommendations of the Committee to increase the current timeline for the £1 million Annual Investment Allowances beyond January 2022.

The Government extended a number of the existing support schemes, such as business rates relief and the VAT reduction for the UK’s tourism and hospitality sector, which were both linked to calls from the Treasury Committee in its report to continue helping businesses affected by the pandemic. 

As a result of the Government’s actions over the past year and the measures announced at Budget, the Office for Budget Responsibility now expects the economy to return to its pre-crisis peak two quarters earlier than previously forecast.

In the original report, the Committee also called on the Government to maintain public spending at a sustainable level, which the Government claims it has done in its latest actions. 

In its statement to the Treasury Committee, the Government said, “The Budget also set out steps to repair the public finances once the recovery is well under way.”

To do so, the Government asserts that it will increase the main rate of Corporation Tax from 2023 under a new tapered system and follow the recommendations of the original report to freeze personal taxes.

Nevertheless, the latest response fell short on many of the major reforms to tax strategies laid out by the Committee, particular an overhaul of the Stamp Duty Land Tax and VAT systems. 

The response stated: “The Budget has set out the Chancellor’s medium-term plan for how the tax system will support the Government’s broad economic objectives for the next five years.

“The Government keeps all taxes under review and the Chancellor will outline tax reforms as part of future fiscal events.”

Concluding the Government said it welcomed many of the recommendations made by the Committee, but felt that “the report leans away from measures that would help to repair the public finances in the coming years”.

The Government, while adopting some elements of the Committee’s ‘Tax After Coronavirus’ report, seem to have neglected other key elements as they focus more on economic growth instead of a major reform of UK taxation.

It is likely, however, that future Budgets will include measures that seek to recapture the significant spending brought about by COVID-19 and the subsequent recovery.

A full version of the Government’s response can be found here.

At Seymour Taylor, we ensure that we have regular contact with our clients in regard to the latest tax regulations, allowing us to be proactive when it comes to tax planning. 

If you are looking for advice on tax after coronavirus, please contact your Seymour Taylor representative today or email or call 01494552100.

This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 23 July 2021.