Recession will put HMRC under pressure to raise revenue
After HMRC revealed that the tax gap had been reduced to a record low of 4.7%, or £31bn, experts point out that large slices of this is put down to “taxpayer error”, “failure to take reasonable care” or “legal interpretation” – where tax is not legally due, but HMRC was expecting it because it misunderstood the law. John Barnett at the Chartered Institute of Taxation, commented: “If even HMRC does not understand the law to the tune of £4.9bn, what hope is there for ordinary taxpayers faced with the same complexity in the system?” With the tax gap predicted to increase and tax revenue to shrink as the economy contracts, there is likely to be more pressure on HMRC to raise revenue. Tom Selby, a senior analyst at the wealth manager AJ Bell, said: “These efforts are likely to focus on people breaking or bending the rules to artificially reduce the amount of tax they pay. However, simplification of the rules that people are re quired to navigate and efforts to further modernise the system of reporting could also go a long way to reducing tax errors.” HMRC said: “We provide a wide range of support and guidance so all our customers can access all the information that they need to get their tax right.”
Source: The Times (11/07/2020)
Economists warn of day of reckoning
Paul Johnson, director of the Institute for Fiscal Studies (IFS), has warned of likely tax rises as a result of a coming recession. He said getting the UK’s £2trn debt mountain under control will take decades, and is likely to require the Treasury to raise an extra £35bn to £40bn a year once the immediate crisis subsides. He added: “The time to pay for this will come, but not this year and not next.” Deputy director Carl Emmerson said it was too early to predict the scale of the hikes as it depended on how quickly the economy recovered, but said “it could be quite a chunky tax rise.” The Chancellor Rishi Sunak yesterday refused to rule out future tax rises to pay for the record public spending during the pandemic. He said it was “too early to speculate”. Meanwhile, research by Redfield & Wilton Strategies for the Mail found that 71% of the public expect taxes to rise to pay for the coronaviru s bailout package.
Planning overhaul and tax cuts planned for ‘freeports’
Under Government plans for a post-Brexit economic revolution, Chancellor Rishi Sunak is preparing to introduce tax cuts and an overhaul of planning laws in up to 10 new “freeports” within a year of the UK becoming fully independent from the EU in December. Mr Sunak will use his autumn budget to invite bids from towns and cities to become freeports, where tax and regulatory changes will be introduced, including research and development tax credits, generous capital allowances, cuts to stamp duty and business rates, and local relaxations of planning laws. The Government believes the policy can transform ports into “international hubs” for manufacturing and innovation. Meanwhile, Michael Gove has announced that the Government is spending £705m to ensure that Britain’s “new borders will be ready when the UK takes back control on January 1 2021”, with or without a post-Brexit trade agreement. The work will lay the foundations for “the world’ s most effective border by 2025”.
Businesses urge Sunak to extend VAT holiday
A poll conducted for the Telegraph by the Chartered Management Institute found 57% senior managers across private and public sectors think ministers should extend the VAT deferral scheme which helps businesses stay afloat during the coronavirus crisis. Between April and June, companies deferred a total of £27.5bn in VAT payments. Chancellor Rishi Sunak declined to renew it after it expired at the end of June. The survey also revealed that 35% of managers expect their organisation to shed jobs by the end of the year, although 53% agreed with the decision to end the furlough scheme.
Source: The Daily Telegraph (12/07/2020)
Company directors overlooked in Sunak’s mini-Budget
The Institute of Directors (IoD) have said that small businesses have been overlooked in the Chancellor’s latest stimulus package with no help forthcoming for company directors, who have not been able to receive income support during the pandemic. Jonathan Geldart, of the IoD, said: “A glaring omission throughout this pandemic has been the exclusion of small company directors, many of whom have not been able to access income support. Widening grant schemes could help those who have been left struggling without assistance, and help more firms to re-open.” Mike Cherry, chairman of the Federation of Small Businesses, agreed while Gina Broadhurst, of the #ForgottenLtd Campaign for small company directors, added: “The Government’s strategy is premised on businesses remaining solvent, but hundreds of thousands of small business owners employing millions of people have received zero support and are on the verge of collapse. At this rate mo re businesses will fall, never to be seen again.” Additionally, Andy Chamberlain, of the Association of Independent Professionals and the Self-Employed, said freelancers were “noticeable by their absence” in Rishi Sunak’s statement. He urged the Chancellor to introduce a tapered end to the Self-Employment Income Support Scheme as well as the furlough scheme.
Small businesses could see 1.4m job losses
Small business may be forced to cut 1.4m jobs unless ministers move to rescue the economy, according to a survey by computing company Sage. The study found that more than three-fifths of SMEs have launched redundancies or are planning to do so amid the coronavirus crisis, with 15% saying they expect to collapse if there is a second wave of COVID-19 cases. Around half said they could go bust if revenue drops by a fifth between now and September. The poll of 2,000 firms saw 65% say management jobs were most likely to be targeted, while 79% do not expect to be making the same profits they did before the pandemic by year-end. Sage managing director Sabby Gill, who described the findings of the report as “gut wrenching”, noted that businesses are embracing the digital revolution as a result of the pandemic, adding that small firms could be encouraged to invest in technology with tax breaks and other support.
Source: The Daily Telegraph (13/07/2020)
High street banks hampered SME crisis lending
Peter Evans reports in the Sunday Times that high street banks, including RBS, Lloyds, HSBC and Barclays objected to plans to allow fintech lenders indirect access to funding from the Bank of England so they could sell loans to small businesses through the Government’s emergency bounce back loan scheme (BBLS). Without access to the same cheap funding, fintech must rely on private backers, meaning the soon run out of cash leaving them unable to lend to thousands of small firms applying for emergency loans. The scheme would have required the big banks to funnel cash from the Bank’s term funding scheme to alternative lenders. But sources say commercial banks did not want to help their competitors.
Source: The Sunday Times (12/07/2020)
Economy sees slower than expected rebound
Data from the Office for National Statistics (ONS) show that the economy rebounded more slowly than expected in May, growing just 1.8% from the previous month when economists had expected an increase of around 5% on the back of lockdown measures easing. The increase recorded in May follows a record 20.4% fall in April and a decline of 6.9% seen in March. The ONS figures show that the economy is now 24.5% smaller than it was in February and has shrunk 19.1% in the three months to May compared with the previous three-month period. Revealing the figures, the ONS warned that the economy is “in the doldrums”. Jonathan Athow, deputy national statistician for economic statistics at the ONS, said the next round of figures could deliver signs of improvement, telling the BBC’s Today programme: “Some of the survey data we’re seeing suggests that as more of the economy reopened and as some of the restrictions were eased, we did see stronger performance in June, but it’s really early.”
Source: BBC News (14/07/2020)