Planning ahead: tax changes on the horizon

14th October ‘20

Recent months have seen the launch of calls for evidence and consultations in the wake of the very significant government expenditure caused by the coronavirus pandemic. This is having a major effect on the UK economy and public finances. This is likely to be the spur to both reforming the current tax rules, which have developed in an ad hoc way over time, and raising public revenue to service and eventually reduce levels of government debt.

A call for evidence

In July, with no major fanfare, The House of Commons Treasury Select Committee launched a call for evidence: Tax after Coronavirus. The policy background was recognition that the UK would need a strong fiscal basis to maintain the cost of the expected level of public services. The issue was whether the economic cost should be reflected in changes to taxation.

The call for evidence recognises that the UK system of taxation had remained largely unchanged for many years. However, during the 1960s-1980s there were a number of radical and far reaching reforms. Several further changes were made in recent years. There is recognition that even before the crisis there were a number of pressures building up in the tax system which had led to calls for reform. Interestingly, there is recognition that dealing with the costs of the current crisis is an opportunity to deal with these issues.

What this means is not whether change will come, but when and how extensive that change will be.

The Committee is seeking evidence on a range of topics including:

  • What are the major long-term pressures on the tax system?
  • What more can the UK do to protect its tax base?
  • Do these pressures need to be met with tax reform, and if so, is this the right time for reform?
  • What overall level of taxation can the economy bear without undesirable or counterproductive harm to economic growth?
  • What is the role of tax reliefs in rebuilding the economy? Does the current regime of tax reliefs perform this role well?
  • What are the areas for simplification?
  • What is the right balance between taxation of work, savings/pensions and wealth?
  • What is the best way to tackle tax reform?

What this suggests is that everything is on the table when considering future changes. Against this must be balanced the statements in the Conservative Party’s Manifesto. These include a pledge not to raise the rate of income tax, VAT or National Insurance. These pledges are very narrow and were given before the pandemic struck so it is not clear whether the Government will adhere to them in all possible circumstances.

These promises would not seem to preclude changes introduced to reform the overall structure and operation of the tax system, especially where the existing rules favour a narrow sector of society. There are a number of areas where owners of private businesses benefit under the current tax rules and it would be prudent for them to review their current strategy both as regards intermediate and long-term planning. Future issues of Planning Ahead will consider these aspects in greater detail.

Long term reform is on the horizon

It is not only in areas of tax policy that long term reform is underway. In its Daily Briefing of 27th August 2020, the ICAEW reported that the government has set out its 10-year strategy for a resilient, adaptable tax administration system.

The government’s intention to create a “tax system fit for the challenges of the 21st century” was first mentioned in 2015. This goal has been repeated on many later occasions and reinforced by the current Chancellor during the 2020 Spring Budget. These plans have now been developed and appear in a strategy document: Building a trusted, modern tax administration system.

The overall emphasis of the proposed plans is to reform and strengthen the reporting and administrative infrastructure. Having said that, the strategy document provides indirect support for the suggestion that we are about to enter a period of continuing reform where both tax policy and the underlying tax administrative system will be reviewed, tested and made fit for purpose.

Again, whilst this is all for the good, individual taxpayers should review their own tax positions. Levels of personal taxation for wealthy individuals, their private companies and their family trusts is relatively benign and there is no guarantee that this will continue indefinitely into the long term. Values are also relatively depressed in some asset classes.

Now might be a good time for arrangements to be made which have the effect of passing on wealth and protecting the inheritance of future generations. This aspect will be considered in greater detail in later issues of Planning Ahead. A number of areas where change is a possibility are already in the public domain. This is because of the unprecedented number of consultations that have been undertaken recently, as well as the publication of thoughtful reviews by well-known tax practitioners on topics such as the possible introduction of a new wealth tax.

Andrew Cockman is a Tax Consultant for Calibrate Law, if you would like to discuss what options might work for you, or have any questions arising from this briefing note, please contact tax@calibrate-law.com

This post is intended to be a guide for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in these publications.

© 2020 AMC Tax Consulting Ltd.

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