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sunak

Budget 2021 – Four tax takeaways

2nd November 2021 by Alex Dunnagan

On Wednesday 27 October, the Chancellor Rishi Sunak unveiled his Autumn Budget 2021.

This budget was billed as one looking ahead to the “post-Covid” era, with a lot of focus on growth and the economic outlet. Numerous news outlets have covered the major stories coming out of the budget. At TaxWatch, what we have scrutinised is the perhaps lesser covered tax stories.

1 – Additional Compliance Work

An additional £292m across three years was announced for HMRC, with the goal of ‘bearing down on tax avoidance and evasion’.

The Taxpayer Protection Taskforce, announced in the Spring 2021 budget, is to see an additional £55m of funding next year. This is in addition to the previously announced £100m investment. It is not clear whether this £55m is part of the aforementioned £292m.

This taskforce will seek to recoup money wrongly claimed from pandemic support schemes, such as furlough.1 The spring announcement on the Taxpayer Protection Taskforce stated that it will be staffed by “HMRC operatives” suggesting that staff are to be moved from elsewhere within HMRC.

The March 2021 Budget revealed that the extra spending on compliance would actually lead to less in tax being collected year on year until 2023-24, with one reason given being “impacts on compliance yield reflecting reprioritisation (including to respond to COVID19).”2

Budget 2021 policy decisions (£ million)

HMRC is set to see a “£0.9 billion cash increase over the Parliament to £5.2 billion in 2024-25”. Spending Review 2020 revealed that £1bn would be going to HMRC “to reform and enhance the UK customs system after the end of the transition period, including investment in vital physical and IT infrastructure and additional support for UK traders”.3 So while the £0.9bn cash increase sounds impressive, it’s worth bearing in mind that the vast majority of this will not go towards tackling tax fraud, but rather to deal with the additional complexities surrounding the UK’s departure from the European Union.

2 – Clamping down on promoters of tax avoidance

The budget also revealed that the forthcoming Finance Bill 2021-22 will feature legislation for further measures to clamp down on promoters of tax avoidance.

Section 5.74 of the budget announced that the measures will:

  • allow HMRC to freeze a promoter’s assets so that the penalties they are liable for are paid
  • deter offshore promoters by introducing a new penalty on the UK entities that support them
  • provide for the closing down of companies and partnerships that promote tax avoidance schemes, and
  • support taxpayers to steer clear of avoidance schemes or exit avoidance quickly, by sharing more information on promoters and their schemes.

In September 2020 we submitted evidence to HMRC as part of their consultation “Tackling Disguised Remuneration Tax Avoidance”,4 calling for those who sell disguised remuneration tax avoidance schemes to be investigated for tax fraud.

These proposed measures stop short of HMRC applying the full criminal law to prosecute those who design, operate, and promote dishonest tax avoidance schemes. TaxWatch’s view remains that the best deterrence is to put those who promote fraudulent schemes before a jury.

3 – R&D reliefs need to be made ‘fit for purpose’

Plans to increase R&D investment to £22bn per year, as outlined in the March 2020 budget, have been pushed back from a targeted May 2024 to 2026-27, with the government acknowledging that current R&D reliefs are not fully “fit for purpose.”

It has long been known that the cost of the R&D expenditure credits is far greater than what was originally anticipated, with a February 2020 NAO report highlighting that the actual costs were more than double those forecast.5

Costs compared with forecast for the research and development (R&D) expenditure credit

Sunak stated in his speech that:

“Companies claimed UK tax relief on £48bn of R&D spending. Yet UK business investment was around half of that, at just £26bn. We’re subsidising billions of pounds of R&D that isn’t even happening here in the United Kingdom. That’s unfair on British taxpayers.”

While it’s correct that there are issues with R&D reliefs, the cause of the problem isn’t necessarily research conducted abroad, but whether or not the research is conducted at all.

The total number of claims for R&D tax credits for 2019-20 was 85,900, with £7.4bn in relief claimed on £47.5bn of expenditure. The ONS estimates that businesses only carried out £25.9 billion of privately-financed R&D in the UK in 2019.6 Overseas expenditure can qualify for tax credits, and HMRC previously produced an initial estimate of £4 billion to £7 billion for overseas expenditure in the year ending March 2018. It is highly unlikely that the amount of overseas expenditure in 2019-20 was £21.6bn, the difference between UK R&D and total R&D claimed. Rather, the data points to large scale abuse.

The government said it would set out separate plans to combat abuse of R&D tax reliefs “later in the autumn”.

4 – Climate change given short shrift

With the UK hosting the 2021 United Nations Climate Change Conference, known as COP26, it seemed a little odd that there was so little on climate in the budget. A week prior to the budget, the UK Government had published its Net-Zero Strategy,7 with talk of “Removing dirty fossil fuels from the global economy.”

The chancellor failed to use the word “climate” even once during his budget speech. He did, however, reveal there would be a cut to the rate of air passenger duty on domestic flights, along with the cancellation of the planned rise in fuel duty.

 

Image by mohamed Hassan from Pixabay

 

1 Fraud and the Coronavirus Job Retention Scheme, Taxwatch, 12 May 2021, http://13.40.187.124/furlough_fraud/

2 Budget 2021, HM Treasury, March 2021, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/966868/BUDGET_2021_-_web.pdf

3 Spending Review 2020, HM Treasury, 15 December 2020, https://www.gov.uk/government/publications/spending-review-2020-documents/spending-review-2020

4 TaxWatch to HMRC: Prosecute sellers of disguised remuneration schemes, TaxWatch, 02 October 2020, http://13.40.187.124/hmrc_loan_charge_fraud/

5 The management of tax expenditures, National Audit Office, 14 February 2020, https://www.nao.org.uk/wp-content/uploads/2020/02/The-management-of-tax-expenditure.pdf

6 Research and Development Tax Credits Statistics, HMRC, September 2021, https://www.gov.uk/government/statistics/corporate-tax-research-and-development-tax-credit/research-and-development-tax-credits-statistics-september-2021

7 Net Zero Strategy: Build Back Greener, Department for Business, Energy & Industrial Strategy, 19 October 2021, https://www.gov.uk/government/publications/net-zero-strategy

Supermarkets to receive billions from government coronavirus package

27th March 2020 by George Turner

The coronavirus outbreak will not be easy for anyone – but there is no doubt that some industries and businesses are set to do well from the widespread social changes that the crisis demands.

One of those industries is our supermarkets. No one can deny that supermarkets are doing an exceptional, difficult and vital job keeping the country supplied during the crisis.

However, the empty shelves seen across the country are not a sign that people have stopped buying food. Quite the opposite. UK supermarkets are currently seeing levels of demand usually experienced around Christmas as households face the prospect of two weeks’ isolation if anyone in the home gets a cough. This is not just a case of Christmas come early. Christmas is coming again and again and again. High volumes have been paired with higher prices as companies remove multi-buy deals to discourage panic-buying.

This is unlikely to be just a coronavirus blip. Social distancing measures may need to be maintained for some time after the outbreak is tamed, meaning that people are likely to be spending more time at home. The shift to home working for millions of people is also likely to persist for some time, as many companies that have been forced to build an infrastructure to allow home working will be more relaxed about their employees doing so in the future.

All of this will mean that in the long term, supermarkets are likely to make significant gains from the coronavirus outbreak. This is probably the last industry right now that needs a bailout – however, they are about to receive a cash bonanza from the government.

One of the big items of spending the government has announced in response to the pandemic been the business rates holiday for all retailers. The holiday applies to all retailers, whether or not they have been forced to close during the outbreak.

According to The Grocer, superstores and hypermarkets pay a total of £2.68bn in business rates a year. Add to this an extra few hundred million paid by smaller stores and the total bill hits £3bn.

The industry is concentrated, with a few companies making up a large percentage of shop space. The largest, Tesco, claims to pay around £700m in business rates a year. A week ago, Sainsbury’s put out a stock market announcement welcoming the Chancellor’s announcement on business rates, pointing out that the company paid £500m in business rates on its shops. Shares in the company were up over 10% on the news. The stock-market announcement said that the company was awaiting details of the scheme, however, it seems certain that they will qualify with the Chancellor stating in his first coronavirus update:

“We’re abolishing business rates altogether this year if you are in hospitality, retail and leisure.”

The amount of money this represents is mind boggling. To put it into context, Tesco made pre-tax profits of £1.6bn last year. A business rates holiday of £700m represents 50% of their total profit. For Sainsbury’s their business rates bill is more than double last year’s pre-tax profit of £239m.

Until now, the response of the government to the immediate crisis has been to throw money at entire sectors of the economy. Given the speed at which the government has to react to events, that is to some extent understandable.

However, there are risks to this approach and some significant questions which will need to be worked through. Does such broad intervention by the government, by rewarding both winners and losers, lead to economic inequalities being exacerbated?

Providing such broad interventions is easier and quicker to administer, but it is expensive. As the bill for the coronavirus continues to mount, will the public continue to support the government if they feel that their tax money is being spent on companies that are set to do very well out of this?

Should the government be asking for more in return for businesses that receive support? In the supermarket sector, should there be an obligation to use at least some of the support they receive to help stock foodbanks for example?

The business rates holiday was announced at a time when the government probably thought that the limit of their intervention on social distancing would be to tell people to wash their hands and avoid the crowds.

Now that the entire county has been put in lockdown, with all but “essential” retailers being told to close their doors, it may be a better idea for the government to take a more targeted approach, with support being directed towards businesses forced to close, whilst those that remain open and thrive continue to pay business rates in the normal way.

This research featured in The Times. Our Director has had an op-ed on the issue published in The Guardian.

Photo by John Cameron on Unsplash


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