It has been reported that several companies’ attempts at obtaining emergency funds have been hampered by concerns regarding the owners’ activities in alleged tax avoidance. The optics of trying to secure taxpayer money whilst straining every sinew to avoid UK tax including becoming non-UK resident, are extremely difficult.
It is easy in tax planning to win a battle but lose the war. The rules of “the game “will change. If companies accept taxpayer funds, and, given the widespread nature of furloughing as well as other support—most have. In return, companies can expect greater public scrutiny of their tax affairs. Moreover, the boundaries of acceptable tax planning will shift—not necessarily to the taxpayer’s advantage!
After the financial crash in 2008/09, companies found themselves the target of hostile scrutiny in their tax conduct. I expect it to be the same in the aftermath of the Pandemic.
Primondell is running a series of seminars in the Autumn on Professional Conduct in Relation to Taxation (PCRT) and protecting your client’s reputation.
Covid 19 has pushed BREXIT out of the headlines but the issue has not gone away. As the talks recommence via video link, why is a comprehensive agreement on our future relationship seem unlikely to be achieved?
- The Johnson Government made some crucial changes to the Withdrawal Agreement; the most important was the dropping of regulatory alignment as a goal. The Government is prepared to accept some friction at the borders as a price worth paying to allow greater freedom to set the UK’s own regulations. Covid 19 has also made the impact of border delays due to additional checks much less of a concern, as health checks will be instituted anyway as the lockdown is eased.
- The impasse over fishing is difficult to see resolved without some major concessions from both sides. Fishing does not represent a large percentage of the UK economy but it is an issue which cuts through to the public and one where key constituencies may be affected.
- Covid 19 has eliminated the possibility of informal chats and behind the scenes face to face meetings, which are normally key to any breakthrough in talks.
From a Tax and Social Security standpoint, this more distant relationship is likely to create major changes in VAT, Customs Duties, Corporation Tax and international social security. Every business with trade across borders or international assignees will be affected.
Primondell will be running a series of courses on the tax and social security effects of BREXIT and the end of the transitional arrangements in the Autumn.
Chris Newell interviewed Jeremy and asked him If he thought whether we are likely to have income tax put up to 70% to pay for all of this.
Follow the link to the webinar to hear the interview with answers to this question plus many more https://lnkd.in/eEaTkyee
At the end of Boris Johnson’s first PMQs since returning to work, he confirmed what many had believed, that there would be no return to austerity to deal with the gaping hole in Government finances.
When Boris was Mayor of London he was not enthused with the austerity policies and now he is Prime Minister, he does not want them repeated. As I indicated in my Q&A session with Quantuma on the 1st May, there are three reasons why the Government was unlikely to repeat the austerity drive.
First, as evidenced by the result of the 2017 General Election, the public’s appetite and indeed acceptance of austerity has worn thin which is why no party was proposing this in the 2019 General Election. Secondly, the market for Government bonds has remained extremely buoyant with lenders prepared to accept negative interest rates to ensure security of their assets.
Thirdly, tax as a percentage of GDP in the UK has been creeping up towards a 40 year high and therefore the room for further tax rises without further damaging the economy is limited.
This does not mean that there will not be no tax rises. At the Q&A session I presented a list of tax reliefs that may be curbed to close the gap in the public finances. However, the main point is that major tax rises are off the table. The Government will be looking to close the gap with a rapid bounce back of the economy and growth that will increase tax revenues in due course, whether this strategy succeeds remains to be seen.
In the same way that it makes investing sense to buy shares when they are cheap and sell them when they are expensive, it also is a good idea to put in a new share scheme when the share price may have been hit by Covid-19.
First of all, it shows that you have confidence in your company. Secondly, it provides a powerful incentive to rebuild the value of the company and thirdly it allows a company to put more shares in a tax efficient plan than would normally be the case.
Share schemes are one of those projects that people talk about but often don’t get around to because of pressing day to day concerns. For those people stuck at home with time to think, this may be the opportunity to rethink your incentive arrangements and reap rewards in the future.
Remember Philip Hammond’s abortive attempt to increase national insurance for the self-employed?
He actually had quite a good case as the benefits being paid to the self-employed increased very substantially in 2016. That NIC rise was scotched by a Conservative backbench rebellion and the embarrassing fact that the NIC rise had been specifically ruled out in the conservative manifesto of 2015.
Move forward a few years and the Conservative manifesto in 2019 also ruled out increases in national insurance. However, at that point, there was no consideration of the self-employed receiving the substantial amount of support that they are through the Covid-19 crisis.
When Rishi Sunak announced this support for the self-employed, he made it clear that their preferential treatment for National Insurance as compared to the employed was no longer justified. One can therefore expect an increase in the Class 4 NIC amount towards 12%, aligning it with employees.
This is one example where Covid-19 will change the fiscal rules of the game, but these National Insurance changes will not be the last.
The facts are not in dispute, the worldwide economy is suffering a global crisis not seen since the depression and the Second World War. The effect on Government finances, economic activity are plain for all to see. What is not clear is the longer term effect on the economy.
Over the past 12 years, the consistently low rates of interest and the willingness of bond holders to accept very low rates of interest, even negative interest because of a fear of the volatility of equities, has changed Government thinking about what level of debt can be sustained.
The conventional thinking was that a debt to GDP ratio of more than 80% was extremely damaging to the economy. This contention may be disproved if current interest rates remain low and quantitative easing continues whereby central banks buy up Government debt without inflation growing.
Clearly Covid-19 will have an effect on the tax system, normally after any crisis which has required additional Government borrowing, be it war or recession, taxes rise as the economy recovers. However, as Britain stands at a 40 year high in terms of tax to GDP Ratio, the scope for tax rises may be limited.
There is another budget due in the Autumn which was anticipated to be the one where taxes might rise substantially. However, with the current uncertainties, further tax rises may be kicked into the long grass.
Primondell will be covering all fiscal related developments in webinars and presentations throughout the summer.
There are times when all talk of fiscal prudence and balancing the books goes out the window. Those with long enough memories will recall that at the time of the Falklands War the Chancellor said that the Treasury would spend whatever it took, this was repeated during the financial crisis of 2008 and of course during both the 1 st and 2 nd World Wars to name just a few occasions where this has happened.
Of course, each crisis presents different challenges and Government needs to respond to the immediate challenge in the appropriate way. Of course, after such a challenge has passed, comes the reckoning, how it is to be paid for. This involved a significant squeeze on public spending after the First World War and grinding austerity after the second. The 2008 financial crash was followed by a decade long squeeze on public finances.
When we come through this crisis, there will be some significant future questions on the profile of taxes and Government expenditure. I hope to explore these in the coming months.
Services during current public health emergency
Understandably, all face to face presentations have been cancelled. However, Primondell has been working on contingency plans and is happy to provide seminars and courses remotely using technology such as Zoom which we have tested and found satisfactory.
Whilst this can never replicate all the qualities of a face to face presentation, we are happy to offer this for as long as the current crisis continues.
Please feel free to contact us directly or through your normal provider. In the meantime, we send our good wishes to everyone to keep healthy and safe.
The best way to illustrate how the Conservative party support has changed is to compare the electoral map of 2019 with that of their greatest victory in terms of seats in 1983 when they had a majority of 144 (on a similar share of the vote) or 1987 when the Conservatives still won a majority of over 100.
In 2019, Boris Johnson won seats in the North of England, North Wales and the Midlands, which eluded Mrs Thatcher in her electoral triumphs. By contrast, Labour has turned London and other large cities into islands of red. It is also noticeable that Labour has retained more Southern seats than it did in its two 1980’s meltdowns.
The Conservatives therefore are reliant on constituencies that never bought into the Thatcherite economic and fiscal revolution. The Chancellor is therefore much more likely to take a stance which not only spends more but also directs tax cuts, such as they are, to their new supporters on more modest incomes. Thatcherite majorities may have returned but maybe not Thatcherite policies.
Are ShareSave, Enterprise Management Incentive Schemes and Company Share Option Plans under threat from opposition parties?
I was a judge at the ProShare awards on Wednesday 4 December and many congratulations to the worthy winners of the awards fostering share ownership and other awards for excellence in promoting share schemes.
One element that has been very little commented on is the potential tax changes to Capital Gains Tax and its effect on tax advantaged share schemes.
At present, if you make a gain under a tax advantage plan it is subject to CGT (Capital Gains Tax) rather than Income Tax and National Insurance which gives a substantial advantage to the employee. Moreover, the employee making a gain of up to £12,000 in a tax year may not pay any tax.
Millions of employees from traditionally lower paid sectors such as retail, construction and service industries have benefited from these plans over the last 40 years. They have been enthusiastically supported across the political spectrum.
Both Labour and the Liberal Democrats are looking to align CGT and Income Tax rates. The Liberal Democrats are also looking to abolish the annual exemption for CGT. This would have a considerable effect on the millions of ordinary employees who benefit from these share plans. These plans are truly for the many– not the few. They have been introduced by parties of all different colours. It would be a shame if their use came a casualty of Income Tax and Capital Gains Tax alignment proposals.
Please note that these are the opinions of the author and not of ProShare.