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Budget 2021 Pay attention to what wasn’t announced

Melissa Geiger, KPMG UK’s Head of Tax Policy, observes that there are still some unanswered questions after yesterday’s Budget

Melissa Geiger observes some unanswered questions after yesterday’s Budget

“As the dust settles on the Budget speech, attention is now turning to those areas where announcements were absent.  The Government has stated that it will issue a number of consultations on 23 March, termed “Tax Day”. Little information has been provided about what the consultations will cover, but it is possible that we may see some fairly radical proposals coming down the line.

“A comprehensive consultation approach to tax policy changes is to be welcomed. It enables the impact of any reform to be properly assessed and should help policy makers in ensuring proposed measures deliver on objectives. This will provide reassurance to businesses and individuals, who will have the time to prepare for changes.”

Capital Gains Tax: “There was no mention of any changes to the rates, scope or allowances of either capital gains tax (CGT) or inheritance tax. While the Chancellor said he was unable to comment on fiscal policy beyond what had been announced yesterday, it is possible that we will see a consultation focussed on capital taxes on 23 March. The Office of Tax Simplification has already reviewed capital gains tax and recommended alignment between the rates at which income and capital are taxed and it therefore looks ripe for some reform. Any changes are unlikely to be introduced immediately, not least for fear of dampening the market for deals, but changes could be in the pipeline in the medium term. Compared to other countries, the UK is mid-range when it comes to rates, so there is certainly some wiggle room for this to increase.”

Online tax: “It is surprising that nothing was said about any online tax. Online sales have rocketed during the pandemic as traditional shops, which were already losing ground to online models, have had to close their doors. An online tax would target retailers who have had a windfall off the back of COVID whilst rejuvenating the high street, but it is by no means easy to implement. Any tax that is closely linked to sales is quite easy to pass on to consumers, hitting their pockets at a time when the Government is keen to stimulate demand. Clearly announcing a wider consultation in this area allows the government to seek ideas and consider options without committing to introducing a tax that would not naturally sit within existing taxing frameworks and collection mechanisms.”

Taxation of work: “Early in the pandemic, the Chancellor commented that he would consider removing the differences in National Insurance Contribution rates between the self-employed and the employed. The NIC burden is significantly less for the self-employed and there is evidence that this is driving decisions as to how to structure the supply of labour rather than driving true entrepreneurial activity. It has been an area of focus for both the Institute for Fiscal Studies and the Treasury Committee. which identified the taxation of the self-employed and employees as an area where major reform was long overdue. However, it is potentially a political hot potato. Memories are not short, and it is only a few years since Philip Hammond attempted a relatively small step in this direction during his time as Chancellor.  The measure was met with backlash that led to a U-turn. It is also difficult to see how any proposal would sit with the 2019 manifesto commitment not to increase NIC rates which the Chancellor confirmed again yesterday.

Environment taxes: “The Chancellor touched on green bonds but didn’t go further. Some would argue that enough hasn’t been done to incentivise positive behaviour in this area among businesses, rather the focus has been on penalties. I think the Government will consider making changes to drive business investment behaviour with the environment in mind.”

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For further information please contact:

KPMG Media Relations

Tel:  +44 (0) 207 694 8773

Helen Jackson

Mobile: 07901 115 649

Helen.jackson@kpmg.co.uk

 

About KPMG

KPMG LLP, a UK limited liability partnership, operates from 21 offices across the UK with approximately 16,000 partners and staff.  The UK firm recorded a revenue of £2.3 billion in the year ended 30 September 2020.

KPMG is a global organization of independent professional services firms providing Audit, Legal, Tax and Advisory services. It operates in 147 countries and territories and has more than 219,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.

Partner, Head of Tax Policy and UK Board Member

KPMG in the UK

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