Tax After Coronavirus
Tax After Coronavirus, a report by the House of Commons Treasury Select Committee, was launched on 1 March 2021, a couple of days before the Budget speech. This report was described by the President of the Chartered Institute of Taxation as being one of the most substantial reports on tax reform in a generation.
Considered in conjunction with this report, the Budget announcements might be seen as opening measures of a thoroughgoing reform of the UK tax system in the round.
Significant Tax Rises
The report states that any significant tax rises at this stage would be detrimental to economic recovery, but it also indicates that in the not too distant future tax will have a role to play in fiscal consolidation. We referred in our recent webinar to the Conservative Party’s manifesto commitment not to increase rates of income tax and national insurance contributions, but that promise is thought likely to come under “considerable pressure”.
Taxes on Individuals
There were no significant, immediate changes to taxes on individuals announced in the Budget, but the freezing of the Personal Allowance and higher-rate tax threshold for four years from April 2022 will lead to an increase in tax revenues through “fiscal drag”, as we anticipated.
We also speculated on an increase in the rate of Corporation Tax. The Chair of the Select Committee said at the launch of its report that it “wouldn’t be unreasonable” to consider increasing the Corporation Tax Rate and so, perhaps unsurprisingly, the most significant tax increase announced by the Chancellor was indeed to the main rate of CT, albeit with reinstatement of a small profits rate.
There has, of course, been criticism from business and from some MPs that increasing Corporation Tax Rates would be harmful to an economic recovery, but the Treasury has countered that only companies that have made profits would be liable to the tax. Again, in line with the Select Committee’s recommendations, the Chancellor has offset the rate increase by announcing more generous provisions for businesses to obtain tax relief for losses or indeed, investing in new equipment.
It is worth noting too that every percentage point increase in Corporation Tax is forecast to deliver £3bn of additional revenue, though the Government is relying on the fact that the UK will still have the lowest corporate tax rate in the G7 to forestall large, international businesses shifting profits to other jurisdictions.
Publication of Tax Consultations
The government are due to publish a range of tax-related consultations and calls for evidence on the 23rd March and we look forward to sharing with you the key implications for personal tax issues following the announcement.
As always, please do get in touch with me if you would like more detailed, one-to-one advice relating to Personal Tax.