Businesses facing short-term cash flow problems because of subdued demand in a severe coronavirus pandemic may be able to defer tax payments, the United Kingdom government indicated as it released a wide-ranging action plan.
Separately, G-7 finance ministers and central bank governors declared that they are ready to “take actions, including fiscal measures where appropriate,” to assist in the response to the COVID-19 virus and support the economy. Given the potential impacts on global growth, they reaffirmed a “commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks,” according to a joint statement published on March 3 by the U.S. Treasury. “G-7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system,” they added.
Guidance published by the U.K. Department of Health & Social Care indicated that, in the event of COVID-19 moving to the fourth phase ("Mitigation") of the plan, an effective procedure already exists for businesses struggling to pay their liabilities: the Time To Pay system operated by HM Revenue & Customs.
“Where any business is in temporary financial difficulty that means they cannot pay their tax in full, they should approach HMRC to agree [to] a Time to Pay arrangement. This enables the business to pay everything that it owes through a payment plan and return to a stable financial footing and paying its tax on time,” an HMRC spokesperson told Tax Notes.
Budget Measures
Setting out how they would respond to a “serious disease outbreak,” the U.K. government and the devolved administrations of Scotland, Wales, and Northern Ireland said they would aim to minimize the potential impact on society and the U.K. and global economy, subject to keeping people safe.
Rishi Sunak, who was appointed chancellor of the Exchequer less than three weeks ago, will deliver his first budget on March 11. “The potential implications of COVID-19 for the U.K. economy and the economic response will, of course, be the context in which next week’s budget is delivered, and the chancellor will provide a further update on economic developments and government action to the [House of Commons]. He has tasked officials to work up further measures to support the public health response, businesses, and the economy as needed,” HM Treasury said in an emailed statement late on March 2.
“We understand that people across the country are worried, but I assure you that we are taking firm action to support your families, your businesses, and the public services on which you rely,” Sunak said.
Sunak’s allies have downplayed the prospect of a big fiscal stimulus and are working instead on “targeted schemes to help public services, companies, and workers, some of them dusted down from the aftermath of the financial crash of 2008,” the Financial Times reported, adding that the budget “will still focus heavily on delivering on the Conservative [election] manifesto.” (Prior coverage of the manifesto.)
Entrepreneurs’ Relief Defended
Responding to calls for the abolition of the capital gains tax entrepreneurs’ relief, the Federation of Small Businesses argued that the relief is “central to retirement planning” for many small business owners. The federation recommends limiting the relief to “the first £1 million of business sales,” according to a March 3 release.
“Scrapping entrepreneurs’ relief would destroy the futures of thousands of business owners currently on the cusp of retirement,” Mike Cherry, the federation’s national chair, said. “Small business owners don’t enjoy the pension opportunities that their employees do — for many, their retirement plan involves selling their business at the end of their working life.” The federation also suggested a return to inflation-linked increases to the VAT threshold.
Tax Experts Call for Strategic Policymaking
Separately, tax experts urged Sunak to take a strategic approach to tax policy and set out clear guiding principles and objectives. In a joint letter dated February 28 and published on March 2, the Chartered Institute of Taxation, the Institute for Fiscal Studies, and the Institute for Government advocated for a tax system that “reduces the burdens of compliance on business and can become a source of competitive advantage for the U.K.”
The signatories asked Sunak to maintain the government’s commitment to holding a single annual fiscal event. Former chancellor Philip Hammond announced in 2016 that there would be a single annual budget, beginning in autumn 2017. However, two budgets are expected in 2020 because the autumn 2019 budget was cancelled to make way for the December general election.
The three organizations also called for an extension of the road map approach to policymaking, for tax reform to be based on “full, open, and early consultation,” and for a routine post-legislative review of tax measures to determine whether they are achieving their objectives at acceptable cost. “Public spending programs are regularly subjected to tests of their value for money; tax reliefs should be held to the same standards,” they said, adding that a recent National Audit Office report identified how tax expenditures could be better scrutinized.