MPs to examine tax system
The Treasury Select Committee is conducting an inquiry into tax and will evaluate whether an overhaul of the tax system is required as the country looks to boost public finances in the aftermath of the COVID-19 pandemic. The committee will consider whether tax breaks can help the economy, long term pressures on the tax system and the level of taxation the economy can withstand. Committee chair Mel Stride, who said the pandemic has put the economy “under extraordinary stress”, suggested tax will “play a major role in the years ahead in restoring the public finances”. He also warned that the worst of the economic fallout of COVID-19 is “perhaps yet to come”. Glyn Fullelove, president of the Chartered Institute of Taxation, commented: “Whatever policies are adopted to meet the challenges ahead, being able to predict what the UK tax system will deliver under any given set of measures is vital for the Chancellor.”
Source: The Daily Telegraph (17/07/2020) The Independent (17/07/2020) Daily Express (17/07/2020)
Making Tax Digital programme to be extended
HMRC has announced that the Making Tax Digital programme will be extended to firms with turnover below the VAT threshold of £85,000 from April 2022. Taxpayers who file self-assessment returns for business or property income of more than £10,000 a year will be brought into the programme the following year. The move has been criticised by Mike Cherry, chairman of the Federation of Small Businesses, who remarked: “The last thing we need is wholesale expansion of Making Tax Digital without the right support in place. Government should be backing small businesses and the self-employed to drive recovery from a severe recession,” noting that the proposed changes would “mean more costs and paperwork for small firms at a critical time.” Jesse Norman, financial secretary to the treasury, said the reforms were designed to bring the tax system into the 21st century. “Making Tax Digital will make it easier for businesses to keep on top of their tax affairs. But it also has huge potential to improve the productivity of our economy, and its resilience in times of crisis,” he said.
PAC calls for pension tax relief review
The Public Accounts Committee (PAC) has called for a wide-scale review of pension tax reliefs, suggesting that the Government does not have enough information on whether the scheme is effective. While ministers say that the policy, which cost the Treasury £38bn in 2018/19, provides an incentive to save long-term, the PAC said: “The Government has not made any assessment of whether that huge cost actually encourages saving for retirement or reduces dependence on state retirement benefits, or whether it just enables those already saving comfortably to save more.” The report also flags concern that certain workers were not benefiting from pension relief, saying around 1.75m low-paid and part-time workers earning less than the personal allowance “will not be getting tax relief on their pension contributions after being auto-enrolled into employer pensions”. Victoria Todd, head of the Low Income Tax Reform Group, welcomed the PAC’s report, saying: “Its recommendation of publishing more data is helpful in terms of making the issue more transparent.”
Source: Daily Mail (21/07/2020)
CGT in the Chancellor’s sights
With Rishi Sunak this week commissioning a review into capital gains tax and telling the Treasury Select Committee that “tough choices” lay ahead, the Mail on Sunday’s Jeff Prestridge says it was “inevitable that sooner rather than later” the Chancellor would “put the nation on red alert” that taxes will have to rise to cover the cost of Government support rolled out to boost economy through the COVID-19 outbreak. Suggesting Mr Sunak will not break a manifesto pledge to not increase income tax, national insurance or VAT, Mr Prestridge looks at the potential for reform of CGT. Elsewhere, Julian Jessop in the Sunday Telegraph says the Chancellor is right to review taxes, but suggests “this should go further than just a rethink of CGT.” Mr Jessop says it would be “a failure of imagination to assume that the only way to increase tax revenues is to incr ease tax rates or to introduce new taxes”, calling for a focus on economic growth and boosting productivity.
Source: The Mail on Sunday (19/07/2020) The Sunday Telegraph (19/07/2020)
SMEs using coronavirus loans to pay bills
Barclays research shows that half of small businesses who have taken support loans amid the coronavirus pandemic are using the emergency funding to pay their suppliers. The study also revealed that 35% have used some of the money to pay rent on their premises, while a third spent part of their loans topping up the wages of furloughed staff. On future intentions, 26% of SMEs plan to increase spending on product development, with 15% looking to increase their investment in automation to boost their productivity. Hannah Bernard, head of business banking at Barclays, said: “SMEs are thinking about how to boost their profits through investment in technology and marketing.”
Source: Sunday Express (19/07/2020)
SMEs optimistic despite pandemic
UK SMEs are among the most optimistic in western Europe, with research by Facebook, the World Bank and the OECD showing that 60% of owners are hopeful about the future of their business. Small firms in the UK remain positive despite the coronavirus lockdown forcing 43% to temporarily close and 58% seeing a decline in sales due to the pandemic. The study shows that 64% of male-led firms reported falling sales during the crisis, compared to 52% of female-run companies, while SMEs run by women are 11% more optimistic on future performance. Facebook vice president of northern Europe Steve Hatch said: “These findings show a steely optimism among British business owners looking to bounce back better following COVID-19, despite how challenging the past few months have been.”
Source: City AM (16/07/2020)
A fifth of SMEs eye smaller offices
Research by Santander shows that a number of SMEs are planning to downsize their offices and encourage staff to work from home in the wake of the COVID-19 pandemic, with 20% looking to occupy less space and 29% set to encourage remote working. The study, which s urveyed 2,050 firms , saw 81% say they are concerned that their business will not recover from the impact of the crisis until 2021 at the earliest. Susan Davies, Santander’s business banking boss, said many SMEs have had to adapt “almost overnight” to survive.
Source: Daily Mail (20/07/2020)
Small firms’ confidence grows
A small business confidence survey by Hitachi Capital Business Finance shows that the proportion of UK-based firms expecting growth in the next three months has risen from 14% in April to 27% in July. The proportion of firms who foresee contraction or collapse in the next quarter has dipped from 31% to 19%. Gavin Wraith-Carter, managing director at Hitachi Capital Business Finance, said: “It shows what an immediate and positive impact the easing of lockdown has had on the small business community.”
Source: The Sun (18/07/2020)
Spending review announced by Treasury
The Treasury has launched a review of government spending, set to be published in the autumn. Chancellor Rishi Sunak said, “tough choices” would have to be made as a result of the COVID-19 pandemic, with Whitehall departments urged to “identify opportunities to reprioritise and deliver savings.” This comes as public borrowing in the first three months of the 2020-21 financial year increased to £127.9bn, according to the Office for National Statistics. Jeremy Thomson-Cook, chief economist at financial services firm Equals, commented: “The UK economy continues to burn, and the Government’s spending taps need to remain open for the foreseeable future in order to give businesses and consumers every opportunity to support each other as we gradually return to normality.”
BoE economist sees V-shaped recovery
Andy Haldane, the Bank of England’s chief economist, says the UK economy has seen a V-shaped “bounceback” following the coronavirus crisis. He told MPs on the Treasury Select Committee: “Roughly half of the roughly 25% fall in activity during March and April has been clawed back over the period since,” adding that the economy had grown by about 1% per week since hitting its floor in mid-April. Mr Haldane noted, however, that while there is evidence of a V-shaped bounceback so far, “that of course doesn’t tell us about where we might go next.” He also told MPs that unemployment was rising and probably stands at about 6%, compared with the 3.9% recorded in the most recent official figures.