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Emerging from uncertain times 

The future of tax

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Commentary from our leading tax specialists Laurence Field and Simon Crookston.

To emerge successfully from this period of uncertainty, organisations must look ahead to understand how changes to the tax system could both help and hinder them.

The government is weighing policies both to recover some of the money it has directed to hibernation of the economy during the COVID-19 pandemic, with furlough scheme measures costing around £20 billion to mid-June, and to provide a stimulus to the economy.

Chancellor Rishi Sunak’s summer Statement saw measures including:

  • a VAT rate cut and voucher schemes to stimulate consumer spending in hard hit sectors such as hospitality and leisure
  • increased allowances to support training, apprenticeships and work experience giving young people the key skills they need to enter the world of work
  • business rates holidays, particularly in key sectors like manufacturing
  • a new Job Retention Bonus to encourage firms to protect jobs by keeping on furloughed workers and bringing them back in to the work place
  • Stamp duty breaks to stimulate the property market.

The summer Statement was focused on job retention and creation through a mixture of grants and focused tax cuts. There is, however, more to come with a second Budget of the year promised in the autumn. This could be the time where more creative ideas are rolled out:

  • converting some of the COVID-19 loans into grants
  • 100% allowances for capital spend
  • business rates holidays for hard hit sectors
  • long-term changes to national insurance rates
  • easing of restrictions around employee share schemes
  • a more flexible VAT regime to encourage spending in strategically important sectors.

Business un-usual

Business leaders must consider their organisation’s role in the broader context of the economic climate.

Cash and capital management must link with risk management and forecasting processes. Strategies must be developed on the premise that several different outcomes are possible. Scenario planning will help businesses identify drivers of change and creative thinking, drawing on broad and diverse experiences, may be the best way to create a genuine advantage.

While making small risk management changes to address specific problems has taken a lot of leadership time since the pandemic began, a crisis can be a time to consider whether the fundamental operating model can be improved.

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Laurence FieldLaurence Field, Corporate Tax Partner at Crowe, said:

"Businesses need to act positively as the economy comes out of hibernation. Waiting for government direction is not going to be a sensible option. However, the government needs to show both creativity and flexibility in the way it uses the tax system to stimulate the economy. It is in everyone’s interest that the recovery is as V-shaped as possible. Business needs to keep on top of any tax changes to see if they can enhance pre-existing plans, or whether those plans need to be reset.

"Uncertainty is ever-present, but its management in a crisis can be crucial to determining whether that crisis will be existential. The status quo is rarely the right option: a business’s response must deal with the immediate short-term while remaining alive to longer-term resilience-building.

"Whether we are in the midst of boom times or facing economic challenges like the lockdown recession, smart decisions will create lasting value.”

Simon CrookstonSimon Crookston, Corporate Tax Partner at Crowe, said:

"Despite the governments stimulus plan to help businesses, the trend for authorities, including HMRC, is still to focus on businesses paying the right amount of tax, at the right time and in the right territory, will continue, characterised by real time electronic tax filing and a general move for tax to be paid earlier.

“From a compliance perspective, HMRC’s overall shift to focus on the process of how tax is accounted for will see more sophisticated methods of collecting, checking and interrogating large volumes of data. The recent Corporate Criminal Offences Act requirements, Senior Accounting Officer regime and the DAC 6 provisions for mandatory disclosure of reportable arrangements are all examples of why good tax integrity should be fundamental to any business strategy.”

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