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Tax arrangements are set to be dramatically overhauled in the coming months. On July 17, the treasury committee launched a new inquiry which is looking into the reality that the tax system is facing.
The inquiry is looking into the reconstruction of the economy after the unprecedented economic fallout of the coronavirus crisis.
The committee will be looking at what the major long-term pressures on the UK tax system are, what more the UK can do to protect its tax base from globalisation and technological change, and whether such pressures should be met with tax reform.
Additionally, the committee will be looking for evidence on what overall level of taxation the economy can bear, the role of tax reliefs in rebuilding the economy, and whether there is a role for windfall taxes in the post-coronavirus world.
Mel Stride, the Chair of the treasury committee, commented on the challenge ahead: “The UK economy, like many economies around the world, has been placed under extraordinary stress due to coronavirus, with the worst of the economic fallout perhaps yet to come.
“Tax will play a major role in the years ahead in restoring the public finances and ensuring that we have a recovery which is balanced across the UK and fair to all.”
“So the Treasury Committee has launched this inquiry to examine how the Government should approach taxation after the coronavirus”
Savers and consumers may be worried that what this all boils down to is raised taxes.
Unfortunately, Andrew Oury, a Partner at Oury Clark Chartered Accountants, warned that this is pretty much assured: “Without a doubt taxes will have to go up. There is just no way around this problem. The Piper will have to be paid.
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“Despite the fact that the government made a pledge in their manifesto – nobody of course factored in Coronavirus – so if anyone is shocked to hear taxes are going up, after we just spent some multiple of what it cost in 2008, it’s like going for a very very large meal, with hundreds of your friends at a restaurant, and then being surprised you were given a bill.
“But it’s all a question of when, and in what way”
The “when”, according to Andrew, is dependent on two key factors: how quickly the economy recovers and what happens with Brexit and international trade.
Andrew detailed that Brexit arrangements could affect how taxes are levied on businesses which of course, could have a corresponding effect on consumers and employees.
On top of this, Andrew also theorised that taxes could be reviewed in other areas which will hit family finances much more directly: “The government has announced they are reviewing all capital gains tax.
“There is a good chance they could do what other countries do, and treat Capital Gains as the same as Income Tax. I.e. you could be paying 45 percent when you sell your business or assets, not 20 percent.
“Also perhaps they will scrap higher rate pension relief which costs circa £40bn.
“But what they will really be banking on is that the UK economy doesn’t crash after Brexit, but actually booms.
“If it doesn’t – then there are hard days for everyone.”
Rishi Sunak and the wider government have launched several support measures in recent months which while being well received, are nonetheless very expensive.
While the government has extended some of these schemes several times they have made it clear that they cannot continue indefinitely and they’ll all be coming to a close by the end of year.
This means that these dramatic and painful tax reforms could come into play as soon as 2021.
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