MPs in tax gap call
The Commons Public Accounts Committee has called on HMRC to offer greater detail on the gap between tax that should be paid on the UK’s economic activity and the tax actually collected. While HMRC said the tax gap was estimated to be £31bn in 2018/19, the committee said the figure has a wide margin of error as HMRC does not include sophisticated tax planning by the wealthy and large businesses in its estimate, with legal avoidance methods thought to cost the public purse billions of pounds each year. The committee said HMRC is not sufficiently clear about levels of uncertainty when publicising the tax gap and suggested that the Revenue does not know the relative size of tax gaps in the four nations of the UK or across different industries. Jim Harra, chief executive of HMRC, has written to committee chair Meg Hillier, saying: “HMRC is the only revenue authority in the world that compiles and publishes a comprehensive measure of the tax gap … we believe it’s important to be transparent in our work.” Noting that HMRC’s methodology has been intensively reviewed by the International Monetary Fund, Mr Harra added: “With this in mind, I find the committee’s characterisation of our work in this area to be wholly unfair and unsubstantiated.”
Source: The Times (16/10/2020) The Independent (16/10/2020)
Sunak told self-employed won’t survive tax rises
With the Chancellor currently drawing up plans to plug the hole in Britain’s finances, Rishi Sunak has been warned that many contractors will not be able to survive if they are forced to pay more tax, with many having received no support at all during the coronavirus pandemic. Derek Cribb, the head of the Association of Independent Professionals and the Self-Employed, says Mr Sunak will find it difficult to sell the idea that the self-employed should pay more tax to “fill the coffers that have been emptied out into other people’s pockets”. However, the University of Oxford’s Professor Judith Freedman backs the idea of aligning the taxes of self-employed workers with normal employees arguing that the tax system was a poor way of rewarding risk. Ms Freedman also believes the tax base should be broadened by making pensioners pay national insurance. “I don’t think it will be popular but I think it probably should be done ” she said.
Source: The Daily Telegraph (21/10/2020)
MPs call for halt of wider MTD roll-out
The Public Accounts Committee has warned that it is unclear whether the Making Tax Digital (MTD) rules rolled out in 2019 have achieved their stated aim of reducing tax errors. As of April 2019, VAT-registered businesses and self-employed people with a turnover exceeding the £85,000 VAT threshold have to use specialist software when they file their returns. A report by the Association of Taxation Technicians says some small businesses have had to spend more than £5,000 on software and training. While HMRC wants all firms to adhere to MTD as of April 2022, the committee says this should be delayed until it is ascertained whether MTD is “reasonable and affordable”. The Chartered Institute of Taxation has backed the call for greater scrutiny of the changes.
Source: The Sunday Telegraph (18/10/2020)
Think tank outlines proposals to avoid tax hikes
The Centre for Policy Studies (CPS) has called for the pensions triple lock to be scrapped as part of a nine-point plan to repair the public finances. The think tank also proposes cuts to the aid budget and child benefit to be further limited as part of £30bn worth of spending cuts designed to spare the UK from post-Covid tax increases. Land and other state assets should also be sold. The head of policy at the CPS, Alex Morton, said: “Taxes are already at historic highs, and any further increases risk choking off any post-Covid recovery. The Government must re-examine its existing spending and ensure it is getting good value before considering raising tax further still. This package of savings is simultaneously radical but realistic – delivering better value for money for voters and allowing the Government to continue funding its priorities.”
Source: The Guardian (21/10/2020) Daily Express (21/10/2020)
Chancellor urged to reveal tax plans
The Sunday Times’ James Coney calls on Rishi Sunak to reveal his intentions in regard to taxes, saying it is time people were given “some clue” on how the Chancellor expects the country to cover the cost of the coronavirus outbreak. He notes Institute for Fiscal Studies analysis suggesting that the Government will need to raise £40bn a year to pay for the pandemic and says that while an Ipsos Mori poll found that most people are happy with tax rises, “you can’t really agree to something unless you know the specifics.”
Source: The Sunday Times (18/10/2020)
SMEs positive on Q4 conditions
Research by Hitachi Capital Business Finance has found that 73% of SMEs believe that conditions will either improve or stay the same during Q4, an increase of three percentage points on the previous survey. The poll saw 27% of smaller firms say they foresee growth in the period, up from 14% during the lockdown but down on the 36% in a poll before the outbreak. Joanna Morris, head of insight at Hitachi Capital, said: “Our data suggests small businesses are reacting positively to the current circumstances”.
Source: Sunday Express (18/10/2020)
Negative rates may be needed to boost recovery
Gertjan Vlieghe, a member of the BoE’s MPC, has indicated that negative interest rates could soon be needed to boost the economy as the second Covid wave hits the recovery. Mr Vlieghe said that in countries where negative rates have been tried, “the effect has generally been positive”. The BoE has taken interest rates to a record low of 0.1% and used QE to inject more money into the system and lower rates in financial markets. However, Mr Vlieghe said that “QE is probably less potent now than in March”, which meant the Bank needed to consider other options including taking rates below zero. He said: “In my view, the outlook for monetary policy is skewed towards adding further stimulus. My own view is that the risk that negative rates end up being counterproductive to the aims of monetary policy is low.”