There is a respectable argument which says that taxes should not rise as a result of the Covid-19 emergency despite the large increase in government spending and borrowing. This is because if the expenditure is treated as exceptional and once the emergency is over, government spending returns to the level it was before, then there should be no need to increase taxes as the structural long- term deficit has not increased.
The problem with this argument is that the Covid emergency is likely to lead to greater spending in the long term because of the probable increases in health spending required and a reduction in revenue because of the scarring of the economy.
The general assumption of most commentators is that taxes will rise it is merely a question of when; by how much; and on what taxes.
We therefore have a change in the tax strategy which should be deployed by clients. For a number of years, planning has been on the assumption that tax rates were reducing and therefore deferral of income and advancement of expenses would reap both cashflow and permanent tax benefits. This is not the case anymore and therefore in this new environment the strategy needs to change.
Primondell will be doing a number of financial and tax strategy presentations in this tax year. For details email jpmind20@gmail.com
