Taxes: Good for business, bad for our pockets
With few alternatives, it seems inevitable that the coronavirus pandemic will lead to higher taxes. The Imprudent Accountant considers the future of tax and what might be expected from the 2021 budget regarding UK tax.
At the moment, accountants seem to be falling over themselves to furlough admin staff and students. Some are undoubtedly going much further and cutting things to the bone while they see how much longer the lockdown lasts and wait to discover its longer-term impact on clients. Those clients are suffering to greater or lesser degrees, many needing bailouts from the government to survive from week to week, let alone into the future.
On top of this, there is a business rate holiday, companies like Virgin Atlantic are demanding funding and, more justifiably, the health and care sectors are receiving a financial boost. At the same time, half the country is closed down, with the rest working way below full throttle.
Short term plan: Getting out alive
All that most of us care about, in the short term, is getting out of this horrible predicament alive, preferably with their jobs and/or businesses intact, if far from the position that they were in around the middle of March.
In stark terms, the government has already signalled the need to borrow more money than it saved throughout all of the years of austerity at the same time as tax revenues will tank. Indeed, one of the novelties of this bizarre situation is to see the government HMRC reversing the flow of money so that the PAYE system is now used to pay out cash rather than receive it.
To compound all of these problems, I cannot be the only person who is struggling to conceive any way that public spending can be cut much further than it has already following a decade of concerted effort. It has surprised me that so few people have been asking how we are going to pay for it.
Tax: The only place to turn to
While interest rates are low, the idea of having the state borrow unimaginable amounts is tenable. Given everything else going on, that may not last. The industry is going to take a long time to recover, while the departure from Europe is not going to be good news financially, in the short term at the very least.
I’m not an economist but don’t subscribe to the view that a country can borrow forever without any consequences. Surely at some point, you have to pay it back? The alternative is to print money, which Germany tried in the 1920s and the resulting inflation helped nobody except suitcase manufacturers.
You don’t have to be an accounting genius to work out that there is only one place that those in power can turn, if they want to prevent the country from going down the pan. That is tax.
Where there's a will, there's a tax
I’ve been trying to think of what we might be able to look forward to, presumably starting the next time that Rishi Sunak stands at the despatch box to deliver a Budget speech. On the basis that the companies benefiting most from the lockdown are those in the virtual sector, an increase in the Digital Services Tax could be a good starting point.
The other area of obvious attack would be all of those “abusive” tax avoidance schemes that have been denuding the government coffers for years, so expect some pretty aggressive behaviour on that front. I wonder whether he might also have the courage to go for IR35 in an even bigger way.
Over and above that, if the government wasn’t so dependent on those who would suffer, you might imagine that the Chancellor would be considering some kind of new wealth or property taxes. More prosaically, if I were Mr Sunak then I would be looking at every single tax rate, relief and allowance with a view to maximising the take, regardless of the pain.
For the avoidance of doubt and regardless of manifesto promises, this could include all of income tax, national insurance contributions, corporation tax, capital gains tax, inheritance tax and VAT. If, by any chance, I’ve missed anything out (except Air Passenger Duty, which is likely to be irrelevant in the short term) just add them to the list.
There is far too much going on to worry about these problems now. However, as soon as life begins to get back to normal, we should all be preparing for the consequences and advising our surviving clients, as best we can, on how to minimise the damage.
On the other hand, higher tax rates have always been good for business.