Chancellor Rishi Sunak's Budget this year was a bit light on tax news. We had confirmation of the country's debt pile, with the treasury having spent an eye-watering £407billion on COVID-19 support.
The furlough scheme was extended again, although even with that in place 700,000 people have lost their jobs as the economy shrank by 10%.
On the plus side, the chancellor forecast the economy will recover more quickly than previously thought, returning to its pre-pandemic size six months earlier, by the middle of 2022.
But the budget deficit (the gap between spending and receipts) will be £355billion this year, or 17% of GDP: the highest level in peacetime. Obviously that isn't sustainable and, as the chancellor said, "corrective action" is required. However, as noted, the Budget was light on tax, with what was announced unlikely to make any significant in-roads into the national debt.
The chancellor confirmed a corporation tax rise, bringing the rate from its historic low of 19% up to 25% (although the UK would still then have the lowest corporation tax rate of the G7 nations). However, the rise will only come into effect from 2023, and just 10% of companies will have to pay this higher rate; businesses with profits under £50,000 will still pay 19%.
The chancellor's hands are somewhat tied if he is to honour the government’s manifesto pledge not to raise rates of income tax, VAT and National Insurance contributions.
Perhaps the public would be more forgiving of a "U-turn" forced by the devastating effects of the pandemic, but political capital may still be at stake. Therefore, taxing capital would seem to be the obvious route for the chancellor to take.
This has of course been the thinking for quite some time, but last year the changes to capital gains tax (CGT) were limited, and again in this year's Budget the surprise was that once more there was no increase of the underlying rate or change to entrepreneurs' relief.
And so this time, surely, on tax day we will see a consultation launched on capital gains tax?!
Tax day is the treasury's innovation — when consultations on future tax changes are published. This used to be done on Budget day, but consultation headlines might have got lost in amongst the Budget headlines, and vice versa. Hence the separation.
Any reforms flowing from the consultations will not actually be legislated until the Finance Bill for 2022, but whereas we might foresee some debate as to how a CGT increase may impinge entrepreneurship, it may seem likely — if we are to prejudge things — that the next Budget will indeed see a CGT rate increase, or a reduction in relief, or both (even if that has all been said before!).
And finally, if any CGT consultation is indeed launched, then shareholders, for example, may want to consider whether there is any prospect of selling their shares before the next Budget in order to realise gains and pay tax on them at the current rates.
One of these could be a reform of the capital gains tax system, according to experts. They expect a response to a review into the levy carried out by the Government’s own tax adviser, the Office of Tax Simplification, and commissioned by the Chancellor himself in the middle of the pandemic.