Tax in a Post-Covid World

I've been reading some very interesting commentary recently on this subject, from the International Monetary Fund to our domestic policy experts such as the London School of Economics and the University of Warwick. Even the FT weighs in with stories about potential tax increases on the horizon. It must be apparent to all who've been paying attention that our tax system is going to be due some painful attention in the coming weeks, months, even years. 

However, what is clear is that we're not alone in this, and we could very well be looking at a new age of not just national, but international tax change, the IMF state:

"...aggressive tax minimization by large taxpayers – however legal it may appear – will become even more intolerable to society at large."

Now, that's a trend that I think almost everyone can agree has been playing out in the UK for some time now, and not just with large taxpayers. The effect of the loan scheme charge is still being very acutely felt by many contractors and self-employed, and that's before we even get on to IR35 and off-payroll working!

Looking to the FT's views, a survey of 75 MPs across all major parties showed 72 percent agreed taxes would increase while 83 percent thought the state would play a greater role in the economy post-Covid. Should this come to pass, which it inevitably must, it's reasonable to assume the greatest changes will be to income tax, as it makes up the largest part of the exchequer's purse. I've been in practice for 20 years now, and when I started out basic rate income tax was 23%, and the personal allowance was only £4,385. Compare that now to a basic rate of 20%, and a personal allowance of £12,500. Even through most of the noughties, income tax has been higher, so it would seem likely to see that change fairly soon post-lockdown.

What else could we see change? Well, some within the UK, and already in Europe are mooting a cut to VAT to encourage post-lockdown spending, and that could well be popular with consumers and business, especially if we see an increase in personal and corporate income taxes.

Of course, with the tax-climate as it is in the UK, I doubt we'll see wealthier taxpayers evade the burning eye of HM Treasury either. Low tax rates on dividends and gains almost exclusively benefit investors and business owners rather than employed or self-employed earners. The LSE report says  that up to £20 billion a year could be raised from taxing all income and capital gains at the same rate as earnings. Good news for the exchequer I'm sure, but could it be potentially catastrophic for the nation's business community?

Regardless of the outcome, it is helpful to the profession and to business to gain an understanding of the research and thought that is likely to drive government thinking in the coming years. We should also remember that it is not all doom and gloom either. In recent years the UK has become a "tax-haven" for many as we've enjoyed the lowest percentage income (personal and corporate) tax take we've ever known. In the words of the market makers, think of it as a rebalancing of the scales...