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Markel Tax

07 Jul 2020

Taxing times – will he or won’t he?

Since early June, speculation has been rife that Chancellor Rishi Sunak would stage a mini-Budget in early July to stimulate the economy and help it recover from the ravages of Coronavirus. It now appears that he won’t be holding a Budget, mini or otherwise, but he is likely to announce some limited measures in the coming days.

So, in an idle moment of solitude, I asked the team what they predict (or wish or suggest) he may announce in his speech tomorrow, or even later in the year in an autumn Budget.

OMB

The OMB team did not just have predictions – they included a wish list! Martin Mann and Mark Baycroft put their thinking caps on to suggest:

  • There may be a reversal of the decision to shelve the reduction in the rate of corporation tax to 17%, or the reintroduction of a small companies rate so that only certain size businesses would be eligible for the lower rate.

  • Make the temporary increase in capital allowances of £1m to 31 December 2020 permanent for the foreseeable future or extend it for another 12 months.

  • The return of business premises renovation allowances in some form (but trying to discourage their use in tax schemes!).

  • Increasing the 0% SDLT band for non-residential properties. As well as stimulating transactions in shops, restaurants and other non-residential properties, this could also help residential investors who buy six or more properties if set at a level that makes a multiple dwellings relief claim less beneficial.

Their wish list is that:

  • Rishi Sunak introduces some form of relief to replace Business Asset Disposal Relief (what was until recently Entrepreneurs Relief) based around reinvesting money back into the business perhaps to give a kick start to new and growing businesses.

  • There is a rethink on the PPR changes for those affected by divorce or struggling with disposing of the former main home, even if only for the period affected by coronavirus.

Tax Investigations

Nathan Ross-Sercombe and Riocard Hoye thought that it would not be surprising to see HMRC stepping up their compliance activity to collect more of the ‘tax gap’ (the amount between that which is paid and that which should be paid) to pay for the recent measures. That said, they are not expecting this to be announced at present whilst the Government are wanting to be seen to be positive and supporting the economy.

VAT

The VAT team thought for 20% longer than the rest of us and came up with:

  • A reduction in the standard rate of VAT. Those who took part in Stuart Brodie’s poll on Linkedin and saw his follow up article can see that he is predicting a cut to 15% and then an increase to 20% or more in around a year.  Kevin Hall tells me that there is some debate as to whether this will be effective, but it is a visible way for the government to show their support for business.

  • Kevin points out that people often do not appreciate that VAT is a tax imposed by EU law, and that the rates are set by that law. However, there are two sectors where rates can be reduced from “standard” to “reduced” under the European legislation and which have been hard hit by the Covid-19 pandemic—the hotel and the restaurant industries—and he thinks that there is scope for the Chancellor to support these industries.

The final comments from the VAT team are a reminder that in the last recession the VAT rate both reduced (from 17.5% to 15%) and increased (ending up at 20%), and that we do not have the highest rate of VAT in the EU!

R&D

I am not quite sure if Justine Dignam, Head of R&D, was sending me a wish list or predictions, but she thinks that some measures to get the economy moving again would be:

  • Capital Allowances – increase the AIA to £2m.

  • R&D tax relief - fast track and broaden the scope of the R&D claim for expenditure relating to data and cloud services (which is already being considered by HMRC, they tell me).

  • Increase the amount a loss making company can claim by surrendering their loss for a cash payment.

Employer Solutions

Thomas Dalby and his Employer Solutions team were looking at the Covid-19 measures when they wrote down their predictions, and seemed to be thinking more about how these measures were going to be paid for:

  • Based on comments from the Chancellor, they think that the quid pro quo for the support given to the self-employed under SEISS will be changes in the NIC regime as it applies to self-employed people, bringing them more into line with employees.

  • Another revenue-raising ‘easy win’ for the Chancellor would be to revisit the review of Worker Status that came out of the Good Work report, to look at harmonising the tax and employment law rules to treat workers as employees for tax purposes. This could result in a material increase in revenues for the Treasury with knock-on effects like expanding the numbers of employers within the scope of the Apprenticeship Levy.

Private client

Like Employer Solutions, we were in a more contrary and curmudgeonly mood, and have been considering how any support for individuals and businesses will need to be paid for. Is now perhaps the time to consider changes to inheritance tax? Recently both the Office for Tax Simplification and the All-Party Parliamentary Group have looked at various aspects of this tax. Could we see abolition or reduction of the amount or scope of Business and Agricultural Property Reliefs or doing away with the capital gains uplift on death?
Another thought is that now UK residential real estate held directly and indirectly is exposed to inheritance tax, could we see indirectly held commercial real estate brought into the inheritance tax net? 

As you can see, we have all been busy, and it is clear that some of us are focusing more on how to pay for stimulating the economy than how it could be stimulated. Whatever happens, the country needs support, this support does need paying for somehow, and the tax system may be a good place to start. Defibrillator, anyone?

If you would like to discuss any of the above, please contact Nicola Goldsmith or call 0333 920 5708.

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