Tax After Coronavirus – upcoming tax refunds for pandemic losses?
This week, most attention will be focused on the Chancellor’s Budget, which will take place on Wednesday 3rd March. Individuals and businesses will be watching closely for possible tax rises, as well as any extensions to the government’s pandemic support schemes. However, it’s also worth noting that today sees the launch of the long-awaited Treasury Select Committee report, ‘Tax After Coronavirus’.
What is the ‘Tax After Coronavirus’ report?
Tax After Coronavirus is a report published by the Treasury Committee. The committee has 11 members drawn from the Conservative, Labour and Scottish National parties. The report is based on the committee’s inquiry into what taxation should look like after the coronavirus pandemic. All committee members agree with the report, but its findings are recommendations to the government rather than new laws. The government may choose to implement all, some or none of the recommendations. However, it must make a formal response by 1st May 2021.
What are the report’s key findings?
The report argues that the post-COVID tax system will need reform. Reform should minimise economic damage, support public services and promote growth. The key recommendations are as follows:
1) Income Tax, National Insurance & VAT. While the government has made a manifesto commitment not to raise these taxes during this parliament, the committee notes that the Government could adjust or freeze income tax thresholds.
2) Corporation Tax. A moderate rise in CT could raise revenue without damaging growth, but a significant increase would be counterproductive.
3) Stamp Duty Land Tax. This needs reforming. The tax level needs to optimise revenue while encouraging home ownership.
4) A 3-year loss carry-back for trading losses. This would be a similar policy to those adopted during the economic crises of 1991 and 2008. It would “allow losses made during the pandemic to be set against up to three previous profitable years, generating a tax refund”.
5) Reform of the tax treatment of the self-employed and employees. The committee agrees with the Chancellor that “it is now much harder to justify the inconsistent contributions between people of different employment statuses”.
6) An extension of the Annual Investment Allowance. This tax relief for expenditure on items like plant and machinery is currently extended until 1st January 2022. The committee suggests extending this further or making it permanent.
7) A windfall tax on profits resulting from the pandemic. While the committee agrees it could be difficult to identify which sectors to tax, it says a windfall tax of this kind is not impossible for the future. However, it also recommends against adopting an annual or one-off wealth tax.
8) Pension tax relief. Because this disproportionately favours those in the top earnings decile, it should be reformed.
9) Carbon taxes. Tax needs to play a part in meeting ‘net zero’ carbon emissions targets. However, while carbon taxes will be necessary, they are unlikely to form a major part of the long-term tax base because they would be transitional in nature.
How will Tax After Coronavirus affect me?
This is the million-dollar question! While the report’s recommendations are not binding on the government, they will be influential. For example, the media is currently reporting that the Chancellor is considering a Corporation Tax hike. In addition, the proposed 3-year loss carry-back has precedent from earlier financial crises – which may appeal to the Treasury.
While we can’t predict the exact effect the report’s recommendations will have on policy, they do provide us with a useful litmus test of parliamentary thinking. In addition, we suggest you pay particular attention to where the report’s thinking chimes with that of the Chancellor. For that reason, we wouldn’t be surprised if there was a major overhaul of self-employed taxation in the very near future. We’ll keep you updated!
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration