Following government borrowing to fund the economy during the pandemic, the Chancellor’s Autumn Budget will raise funds by increased taxation. As this is widely expected he has that mandate. Here are some Tax Measures During the Covid Crisis that are being considered for implementation:

• Raising Corporation Tax

• Aligning Capital Gains Tax (CGT) with Income Tax

• Cutting Pensions Tax Relief, possibly establishing flat rates

• Removing the Pensions Triple Lock; align state pensions with wages

• Inflation or 2.5%, whichever is higher

• Self-Employed Taxation Increase

• Company Dividends Tax Increase

While measures haven’t been officially announced, MPs and business groups are raising criticism, fearing wrong timing for extensively raising taxes, given current uncertainties. Businesses worry such moves could increase redundancies and business closures.

Simon Angear,(Bristol CBI),  believes: “A growing economy, underpinned by investment will protect livelihoods and public services…   immediate priorities are supporting business through the continuing disruption caused by Covid-19 and … an ambitious agreement with the EU, the UK’s biggest trading partner.”

We asked SMEs and accountants opinions on fiscal measures, economic needs and raising revenues.

Higher Corporation Rates

If Corporation Tax increases 25%, from 19% to 24%, this burdens cash-hungry start-ups, many of which could suffer.

Brexit compounds uncertainties risking investors forsaking U.K. markets.

Right now, we need to encourage growth and investment, however difficult. I believe significantly increasing Corporation Tax is detrimental to start-ups, small businesses and hampers U.K. competitiveness, sabotaging recovery long term, particularly ignoring differentiation between company type and size, or ability to raise cash.

This Government should focus on measures encouraging UK start-up growth.

Verdict: Raising Corporation Taxes for smaller businesses right now is dangerous and ill-advised.

CGT Rises Versus Blanket Dividend Rises

Tax hikes have arisen since the Government’s Covid-19 reform package. With an Autumn budget ahead, rumoured tax hikes already headline national newspapers. Front-page coverage help the Government gauge public sentiment, but public reactions to speculation should not be under-estimated. Given this government’s reputation struggles, following numerous U-turns, they’ll prefer policies minimising possible upset.

Raising CGT, aligned to income tax seems plausible, albeit this may hasten realising asset gains to avoid losses. CGT impacts particular sectors, such as buy-to-let landlords, stamp duty relief beneficiaries, so that pinch may feel less profound for some.

Raising company dividend taxation stops wealthy individuals shielding income inside a company. The Chancellor needs to consider harm to family-owned businesses, that haven’t benefited from stimulus schemes.

The Chancellor must pay attention to public sentiment. Before the March Budget, YouGov revealed that only about 30% did not favour any tax cuts, but wanted increased public service funding. Research also reveals that CGT, Corporation Tax, Stamp Duty, Alcohol and Tobacco tax are probably the softest targets; few people felt these were too high. Income tax, VAT, fuel and council tax would, however, prove controversial.

The Government could prioritise soft targets, like CGT and Stamp Duty.

Verdict: Overhauling CGT is a sensible for raising revenues.

Any Tax Increases Need Accompany Sensible Incentives

Believing that small company directors should pay for support that they don’t benefit from   is misguided.  Spreading the burden is reasonable, however, better targeting is advisable. Growing businesses should be rewarded for rebuilding the U.K.

Entrepreneurs Relief should be protected. Most business owners forsake a pension for building their business, thus deserve breaks. Inheritance Tax (IHT) and non-business asset CGT should be reviewed, together with wider small increases, while incentivising growth, for example, waiving Employers NI for companies employing above their average employee numbers for early 2020 –  not a headline grabber, but  really boosting U.K. Plc.

A ‘luxury tax’ on items over a certain value, differentiated by category, is another possibility.  Not being cost-driven purchases, extra percentages won’t significantly harm sales. .

Ministers need balanced solutions, rather than selecting easier levers, because growth is a long process. Non-newsy alternatives can work.

The Government could review wealth taxes: CGT, IHT and luxury item taxes.

Verdict: Targeted incentives maintain growth.  Small businesses need relief from excessive tax burdens.

Small Company Corporation Tax Rate

The ‘triple tax lock’ means that the government is prevented from increasing rates of Income Tax, VAT and most NI Contributions by potential political unrest. Such political risk does not extend to Capital Gains Tax, Corporation Tax and Dividend Tax.

Corporation Tax is expected to rise to 24%. Reintroducing the Small Companies’ Rate ensures smaller businesses are insulated.

For over a decade, CGT has been significantly lower than income tax. Parity at 20%, 40% and 45% could now happen. ‘Business Asset Disposal Relief’, (formerly, Entrepreneurs Relief) could also be adjusted.

Dividend tax rates, (between 7.5% – 38.1%), together with the dividend allowance are another option.

Our clients submit important suggestions. With strategic advance notifications by the Chancellor, taxpayers will bring forward suggestions, increasing the exchequer’s revenues in the short term, as was the case with the introduction of the dividend tax rates in 2016.

The Government could re-introduce the Small Companies Rate for Corporation Tax.

Verdict:  Clients are bringing forward important alternatives in relation to CGT and Corporation Tax.

Tax Increase During Recession Risks Small Business Development

Small Businesses and self-employment were fundamental to recovery from our last recession. To play that critical role again, every policy decision needs to be assessed based on its potential to help this sector invest and expand.

Policymakers could avoid tax hikes that limit job creation and growth during these crucial months ahead. A punitive approach sends deter those who are out of work, from considering starting up their own venture.

We need the most pro-business Budget ever, this autumn, to reduce employment costs, increase investment, minimise tax burdens for entrepreneurs and incentivise business creation.  SME business stimulus – is essential for recovery.

Author: Lana Johnson, Senior Partner Bsc(Hons), MAAT CIPPdip

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