First and foremost, this Budget should be about continuing to support businesses and employment, not a money grab by increasing tax rates for short-term gain. A long-term view is needed on how the country pays back the COVID debt, and any overnight tax hikes could have a materially damaging impact on businesses and the economy’s recovery.
Here’s what I would like to see from the Chancellor on 3 March:
- Extend the loss carry back rules for business to three years. This will help previously profitable businesses that have suffered COVID losses with a much needed cash injection. This was available to businesses back in 2008 so should be easy to implement.
- Allow small and medium-sized enterprises (SMEs) who have suffered COVID losses to sell these in exchange for a cash rebate – similar to how the research & development (R&D) tax credit scheme works for SMEs. The losses could be surrendered for a cash refund of say 14.5% – so business owners would have the choice to carry these losses forward (and get relief at the higher Corporation Tax rate of 19% – or whatever it may be in the future), or surrender them now for a lower but welcome cash injection. This would help fledgling businesses that have not historically made profits so wouldn’t get relief under point 1 above.
- Abolish (or at least defer) the proposed PAYE cap on SME R&D claims, due to come in from 1 April 2021. Many young R&D businesses need to use consultants as they won’t have the resource or the need for full time staff. The proposed PAYE cap will significantly restrict the benefit they are able to claim under the R&D SME scheme and significantly stifle innovation.
- Leave Business Asset Disposal Relief (BADR) – previously known as Entrepreneurs’ Relief, alone. The lifetime limit has already been cut from £10m to £1m and we need to continue to encourage entrepreneurship and M&A activity. The rate of Capital Gains Tax (CGT) on disposal of active investments should remain at 20%.
- The Chancellor may consider a (potentially temporary) CGT surcharge for passive investments (such as listed stocks and shares), similar to the CGT surcharge that we have on disposals of residential properties.
- Extend the furlough scheme – but only for businesses that have been forced to close by the Government, or had their activities significantly curtailed, such as non-essential shops, hospitality, and the travel industry.
- No ‘windfall tax’ on businesses that have been successful during the pandemic. We shouldn’t be punishing success, but rather encouraging it. Business that have done well throughout the pandemic have employed thousands of new staff and will be contributing by paying employers NIC on their wages, not to mention providing work for people who may otherwise be claiming benefits.
Now is not the time for Income Tax rises, but that time will come.
- Now is not the time for Income Tax rises, but that time will come. The Chancellor and the population will need to accept that the promise made on the triple lock pre-pandemic can’t hold strong in a post-pandemic world. It is the duty for all to repay the COVID debt, and a small increase in Income Tax over a period of time, coupled with an increase in the personal allowance so the lowest of earners do not see their take home pay impacted, is needed. 1% on every rate of Income Tax, but not until April 2022.
- VAT – we can’t rule out an increase in VAT, perhaps coupled with an extension of the VAT cut for the hospitality sector. History has shown that increasing (or decreasing) VAT rates does not impact consumer spending, but an increase in the standard rate of VAT to say 22% is possible.
- The Chancellor should extend tax reliefs for individuals who want to invest in start-ups and private businesses to make private investment more desirable; perhaps by widening the qualifying category of businesses or removing some of the qualifying conditions for existing tax reliefs which exist.
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