Jane Mackay, Partner and Head of Tax at Crowe gives her thoughts on the upcoming Budget
“The Chancellor is in a bind. By committing to the Conservative party manifesto promise, he’s seriously restricted his options to raise substantial amounts of tax through income tax, NIC and VAT. He may feel able to introduce a ’Covid Recovery Levy‘ instead and brazen his way through accusations that this is an income tax in all but name. But he’ll be delivering the Budget when it’s clear we are nowhere near through the pandemic. So my guess is that he won’t do anything to risk the fragile state of the economy and population.
“I expect the Chancellor will increase corporation tax as rumoured. When the 17% corporation tax rate was announced (though in the end never introduced) the idea was to make the UK “one of the most attractive places in the world to do business”. The global tax environment has changed a lot since then and it seems clear that the UK’s corporation tax rate alone will never in future be the critical factor in deciding a business location.
“If he increases the corporation tax rate to 21% it would still fall at the competitive end of the G20 rates and companies will only pay the increase if they have profits. The Chancellor may pre-empt potential opposition to a rate rise with enhanced tax reliefs for expenditure on longer term investment in the economy such as R&D (particularly with reference to vaccine research based on the UK’s well-publicised success) or capital expenditure (to boost the UK’s manufacturing and engineering industries). Sunak may decide to reintroduce the large and small companies’ tax rates. If he did this, larger groups or companies with higher profits will pay a higher percentage of tax. This could be a way of taxing companies that have ‘done well’ out of the lockdowns while limiting the impact on SMEs.
“A rate change will not raise more UK tax from the global digital giants and failing to tackle this perceived unfairness will not go down well. However, we do have the Digital Services Tax already, and it may be in the UK’s best interests, longer term, to appear to support a global approach to this global tax problem.
“With any luck, the government will provide a roadmap setting out its approach to tax policy so at least taxpayers can start to plan around the inevitable taxes that must be raised at some point soon.”
For further Budget Predictions 2021 from national Audit, Tax, Advisory and Risk firm Crowe, visit: Budget 2021: Crowe predictions | Crowe UK
