Tax; the Good, the Bad and the Ugly – and the Preposterous

The Good

The "super deduction" allows firms to cut their tax bill by up to 25p for every £1 they invest, a tax break Chancellor Rishi Sunak has described as the "the biggest business tax cut in modern British history". A recent poll shows that CFOs of large British firms went from being the least likely in Europe to invest in their businesses to the most likely last month. A further survey of 500 small firms last month found that nearly half were planning new investments due to the super deduction. Great news!

The Bad

A recent worry is that the Chancellor may mirror Joe Biden’s tax plans, with the President looking to nearly double capital gains tax and dividends for wealthy Americans. The Treasury could be tempted to follow Mr Biden's lead, so that if capital gains tax rates were aligned with income tax rates, the top rate of capital gains tax would increase to 45%. The TaxPayers' Alliance says Britain should avoid implementing punishing new taxes in the wake of the economic blow dealt by the pandemic, saying: “A wealth tax would lead to capital flight, declining investment and dwindling revenue for the Government.” They added that policymakers should be doing “exactly the opposite: cutting taxes for everyone so we can get the economy back on track”.

The Ugly

HMRC has denied reports that it is set to crack down on people’s cryptocurrency assets but it is likely that officials would begin to demand data on the holdings of cryptocurrencies from taxpayers it suspects of tax evasion and avoidance. New forms, they added, simply list crypto assets as an example of an asset that should be declared. The spokesman added that any crackdown on crypto assets would come with advanced notice and information.

Another ugly situation has arisen in that Landlords selling property amid a market boom seen during the pandemic have been hit with fines for missing the new 30-day tax window, with more than 16,000 people missing the deadline last year. Since April 2020, those selling a second home must declare and pay any capital gains tax due within a month of completion or face penalties. HMRC says it is taking a lenient approach to fines, and that no one would be penalised for paying their taxes late until 2022. However, more than 13,000 people still received penalties for filing late outside of the three-month grace period.

The Preposterous

The International Business Network has called for the abolition of corporation tax and cuts to income tax and VAT to drive a post-pandemic recovery. The group, which represents family businesses, urges the Government to make £150bn of tax cuts, £70bn of which should be permanent while quantitative easing should be abandoned. However, this is very unlikely, as the cost of the pandemic has to be paid for somehow.