For the second year in a row the scheduled Autumn Budget was cancelled. Last time it was the upcoming “Brexit Election” but this time it is ongoing coronavirus crisis that has meant that any economic plans and strategy the government may have had, were rendered irrelevant.
Instead of course we had the “Winter Economy Plan” which was all about spending (in the not unreasonable) cause of mitigating the effects of COVID19 on individuals, businesses and jobs. This does perhaps give us an opportunity to reflect on what may lie not very far down the road when “spending” for the crisis becomes “paying” for the crisis.
The most recent estimates are that by April 2021 the government will have borrowed a staggering £372bn for the current financial year to April 2021. That is more than twice as much as was recorded in the 2008 financial crisis, and for the same period it will have raised less tax as a result of furlough, reduced VAT and the general economic inactivity.
Whilst the government, aided by the new order of unfeasibly low interest rates, does seem prepared to tolerate levels of deficit and national debt that would have been unthinkable not so very long ago there can be little doubt that increasing the “tax take” will inevitably form part of post COVID economic strategy.
Faced with spending more and bringing in less the Chancellor will have a difficult tightrope to walk. Balancing the need to raise revenue on the one hand without stunting the growth of a recovering economy.
However, the respected Institute of Fiscal Studies think tank (https://www.ifs.org.uk/publications/15081) has warned that tax rises of more than £40bn a year are “all but inevitable.” What the package of tax changes will be is, frankly, anyone’s guess at this stage but what seems certain is that changes for businesses and business owners will be inevitable with some of the likely runners and riders being:
- Scrapping entrepreneur’s relief
- Alignment (which means increase) of taxation of dividends with the rates income tax
- Reform of IR35 off payroll working
- Scrapping high rate tax relief on pension contributions
- Increases to corporation tax rates (though with possible incentives for re-investment) with suggestions that it will go from 19% to 24%
- Significant changes to the capital gains tax regime to bring it into line with income tax
- Increases to the higher rates of income tax
- Rises to National Insurance rates for the self-employed to bring them into line with employee rates
- “Wealth taxes”, with a possible new tax on high value or second properties and/or increases to inheritance tax
No doubt coping with the impact of the pandemic continues to attract the focus of all of us, whether owners, managers or employees involved in business. But it is perhaps worth trying to put this to one side for a short while to consider what the recovery may look like over the coming months, how the changes to the tax regime may impact on this and how businesses can strategically restructure.
The postponed budget meant that there were no overnight tax changes to catch us napping but there must be one before the end of the fiscal year and the window to consider planning for tax changes is inevitably limited.
Part of this may well be that business owners conclude that this is the right time to exit, whether via a trade sale, MBO to management or succession planning to pass the business to the next generation. The current circumstances mean that these sorts of transactions are taking longer to conclude, even when relatively straightforward. So although the next budget is probably some months off it is probably wise to pursue these options sooner rather than later.
For further details on how best to make the most of the current climate for your business contact Phil Whitehurst or call him on 0151 230 1224