Were Tax Hikes Inevitable After COVID-19?

22 September 2021|Related :

On Tuesday 7th September, Prime Minister Boris Johnson announced tax hikes of £12 billion a year in order to help cover the costs of the coronavirus pandemic aftermath and support the National Health Service (NHS).

This marks the second round of tax increases this year after the government raised corporation tax by 6 percent points from 19% to 25% back in March, claiming the pandemic would likely leave “long-term economic scarring.”

Under the proposal, the rate of National Insurance (NI) taxes paid by employers and workers will increase by 1.25 percent. The same rise will also be applied to taxes on shareholder dividends and is expected to raise around £12 billion a year.

The additional funds will be put into Britain’s social care system in order to cover the next two decades, during which costs are expected to double as the population ages. The government also hopes that the funding will help tackle waiting lists within the NHS after millions of people waited months for treatment throughout the pandemic when resources were directed to COVID-19 patients.

According to research economist for Institute for Fiscal Studies, Isabel Stockton, COVID will leave the UK economy “permanently smaller by about 3%” and would “need to be paid for if we’re going to afford the same level of public spending without increasing borrowing”.

This suggests that tax hikes would be inevitable following the pandemic and many other countries are expected to follow suit, with US President Joe Biden’s administration planning to increase taxes to repay the pandemic bill after Congress passed significant government support for individuals and businesses.

How are Businesses Responding to the Tax Hikes?

Throughout the pandemic, many businesses were grateful for the support from government initiatives such as the Coronavirus Job Retention Scheme (CJRS) and the Business Interruption Loan Scheme. However, now the bills for this support are cropping up, many businesses aren’t too pleased about the extent to which they are having to pay back.

Following the announcement of the rise in the rate of corporation tax in March, many were shocked at the steep increase from 19 to 25 percent which will likely extract around £16 billion a year from businesses.

After the second announcement, it has been made clear that much of the responsibility to cover the cost of the pandemic is falling on businesses. Whilst companies are happy to play their part by paying higher taxes, they aren’t too pleased how much more they’re being asked to pay.

Tony Danker, director-general of the CBI said:

“After the pandemic, we in business believe that we should pay our fair share to tackle the debts of COVID. That is why many business leaders accepted the jaw-dropping six point corporate tax increase announced in March.

But there is a real risk now that the government will keep turning to business taxes to carry the load… Raising business taxes too far has always been self-defeating, as it stymies further investment”

Lord Macpherson, permanent secretary to the Treasury from 2005-16 also took a stand against the severe tax hikes. He said:

“Taxing employers is easier politically. They don’t have many votes. But employers’ national insurance is a tax on jobs. Tax more employment and you get less of it. 

Sunak has announced more than £40bn of tax increases this year, nearly two-thirds of which will be borne by business in the form of higher corporation tax and national insurance. 

That may be good politics, but at a time when Brexit has made it more important than ever that the UK is business-friendly, it is almost certainly bad economics.”

However, others have argued that such high tax increases should be expected following on from the pandemic, with Sir Martin Sorrel, the advertising mogul, saying:

“There will be higher income taxes, there will be higher corporate taxes, there will be higher personal taxes. It has to happen, it’s unrealistic to believe that governments can balance their budgets having spent the sort of money they have without increasing taxes.”

Support with Your Taxes

At Ryans, we understand that corporation tax represents a substantial part of your trading costs and making sure you’re compliant can hold a heavy burden. That’s why we offer efficient corporate tax planning that can result in potentially significant improvements in your bottom line whilst ensuring you’re complying with the law.

How we can help you:

  • Determining the most tax effective structure for your business
  • Taking full advantage of tax opportunities and reliefs
  • Achieving the optimum capital or revenue tax treatment
  • Reducing tax on disposals and maximising relief on acquisitions
  • Making the most of tax opportunities specific to your industry
  • Meeting the rigorous demands of compliance including corporation tax self assessment
  • Acting on your behalf in discussions with the tax authorities

Let’s talk tax.

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