The coronavirus pandemic of 2020 has caused havoc for businesses. However, it is expected the effects of the virus will be felt for many years. In order to get back the huge sum of money borrowed by the government to tackle the pandemic; tax changes are expected.
Here, we will look at how tax is set to change for businesses as a result of COVID.
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Will taxes rise?
Although we don’t know for certain whether or not tax will rise as a result of COVID, it is likely. You only have to look at how the UK has handled previous economic disasters to see that tax rises are a common response.
According to think tank, The Institute for Fiscal Studies (IFS), tax rises of over £40 billion a year are to be expected. So far, more than £200 billion has been pumped into the economy by the government to protect jobs and businesses. To claw some of the money they have borrowed back, IFS predicts tax rises will begin in the middle of the next decade.
So, tax rises are likely, but not for a number of years. The economy is going to take time to rebuild and businesses and consumers will not have the extra funds to pay higher taxes anytime soon.
Could a tax reform be the answer?
Rather than increase taxes, many experts are lobbying for the government to reform its current tax system. They argue that up to £11 billion could be raised each year by introducing an alternative minimum tax rate. This would be based on the total amount of capital gains and income that an individual reports before applying deductions.
Research carried out by the University of Warwick, has found that a large portion of those earning more than £100,000, pay a very low level of tax. In some cases, they pay less than those earning less due to current rules. So, reforming the tax system could generate a lot of extra money to pay off the debts accumulated.
How can businesses prepare?
Understandably, businesses are worried about the impending tax changes that could be introduced. While any changes may not happen for years, it is important to be prepared.
It is a good idea for businesses to seek expert guidance on how any tax changes might affect them. With help from experts at RSM, they can plan ahead and identify any risks they need to be aware of.
COVID has brought a lot of devastation to the UK, both in terms of health and the economy. While we may not know exactly what changes are coming, tax rises are a concern for the majority of businesses.