Rishi Sunak has launched several measures to keep the economy afloat during the pandemic, with the Job Retention Scheme, Self-Employment Income Support Scheme and others being claimed by millions of struggling workers. However, while a vaccine may be on the horizon, coronavirus is still impacting the economy and as such, some experts are reviewing if the Chancellor will extend support or pull it back in the coming months.
On this, Daren Moore, the Group Commercial Director at TaxAssist Accountants, commented on what may be on the horizon in the coming months: “”As we move towards the Budget on March 3, we see increasing speculation around possible tax changes and the ways in which the Government can start to deal with the huge impact COVID-19 has had on public finances.
“For this reason, many will consider this the most important Budget in living memory, but we suspect the reality will be very different.
“The backdrop to the Budget is likely to be an ongoing pandemic with national lockdowns and restrictions still in place and large parts of our economy still struggling.
“Yes, we all hope that the vaccines being rolled out will help us all move back to some sense of normality, but this will take time.”
Daren went on to detail that the Chancellor will have “limited” options available to him and with the pandemic continuing into spring, Rishi may have no choice but to extend support further.
Unfinished business by the Chancellor
Daren explained that given the current reality, the Government should not shy away from financial support: “The Government needs to ensure that its COVID-19 support remains in place for as long as it is needed.
“Key schemes such as the Coronavirus Job Retention Scheme (AKA furlough scheme) and Self-Employment Income Support Scheme (SEISS) have already been extended on more than one occasion, but the impact of the pandemic continues to be felt by many sectors.
“We predict that there will be further extension plans put in place as businesses will not be able to cope with a ‘cliff edge’ approach of funding if these schemes are simply removed. “Support will need to be scaled back over a period of time, allowing businesses to transition back to a position where they are able to fully fund their activities.
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“Without this, hundreds of thousands of businesses and the jobs they represent could be at risk.
“We expect the Job Support Scheme and Job Retention Bonus Scheme return, which are examples of how funding could be transitioned or to see similar schemes announced in March.”
SEISS in particular has proven to be particularly controversial for the Government as it emerged that millions of self-employed workers were left ineligible for support.
However, Daren went on to theorise these workers could be offered much needed support and reversals come March: “We understand the Treasury is reviewing proposals to support those who have been forgotten through current funding schemes.
“Millions of directors, self-employed and freelancers have missed out on funding through no fault of their own. We recognise that it is impossible to fund every individual and save every business, but we feel the current system is unfair.
“There are too many gaps and too many individuals who have missed out.
“We all hope that we live in a fair and equitable society – the Government needs to recognise these gaps and protect and support the businesses, lives and families affected.
On the flipside of extending support, Daren went on to review how taxes may change as the summer approaches.
Possible tax rises in the Budget
In somewhat relieving news, Daren initially detailed any “significant” tax changes are likely to be deferred until after the pandemic subsides but alterations are still inevitable over the long-term: “While we don’t believe now is the time for significant changes to the tax system, there is no doubt that tax revenues will have to rise in the medium and long term.
“This will have to be balanced with the need to support growth, the likely levels of spending needed post Covid-19 and the tax lock in place, with the Government committing to no increases to income tax, VAT and national insurance in this parliament.”
Daren went on to examine the specific areas and taxes that could see change: “There are some potential opportunities should the Chancellor look to raise taxes in the coming budget without causing significant political and economic fallout. There has been speculation for some time now around the possibility of removing higher rate tax relief on pension contributions and introducing a new flat rate relief.
“For many this would be a fairer system and the impact on tax revenues is projected to be sizable. It may also support plans to encourage these individuals to invest in businesses directly, rather than saving via pension funds.
“Increases in fuel duty, the introduction of a plastic tax and VAT on more environmentally damaging activities could also be considered, which would sit well alongside possible enhanced tax relief for green investments.”
Daren concluded: “More significant changes to taxes have been mentioned by many, but it seems unlikely these will be introduced in this Budget.
“Changes to the capital gains tax and inheritance tax systems have been debated for years and they do appear to need an overhaul, but that seems likely to be a project for the Chancellor in subsequent budgets.
“We would also be concerned that any change in capital gains tax relief as investors in small businesses would be discouraged from funding and investment at a time they most need it.
“Finally, there has been speculation recently that the Government could introduce a wealth tax, including some suggestions that it would apply as a flat rate to assets over £1million.
“Despite the possible tax revenues this could generate, it seems very unlikely we will see this introduced in the near future.
“The calculation and collection of this type of tax would be hugely complex and it seems unlikely that the Government would have the appetite for this type of wealth redistribution policy.”
It remains to be seen what Rishi Sunak’s plans are and the only insight from the Government came when the budget date was announced in mid-December, as HM Treasury noted: “The Budget will set out the next phase of the plan to tackle the virus and protect jobs and will be published alongside the latest forecasts from the Office for Budget Responsibility (OBR).”
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