The loophole in budget post-pandemic will require the government to seek reform in tax to create a fair and simple system.
Immediately when Chancellor Rushi Sunak revealed his financial support for self-employed people there was an immediate word that tax changes are coming.
On the whole, this generous package had a lot to be added, especially for directors and shell service companies, it was a breath of fresh air for squeezed self-employed people.
But during his speech the Chancellor said “We must pay in equally in the future”, signalling that changes are coming. The focus has shifted to the different forms of employment and other forms of business structuring which creates a variety of tax liabilities.
Now the question hangs in the air – What should be reformed and how?
In recently published House of Lords’ review of IR35 rules coming for the private sector, it was made clear that the Finance Committee believes the government should consider the potential damage that will be done to the flexibility of contractual work and labour market if the upcoming changes to IR35 are implemented.
The government has already delayed the starting date for these reforms by one year, but the committee said: “The government’s framework to tackle tax avoidance by those in ‘disguised employment’ – have never worked satisfactorily, throughout the whole of their 20-year history”.
Further down the committee consider the whole setup as flawed. The Institute for Government goes even further in its report on overcoming barriers to reform in tax, published last month. They expressed the opinion that the UK tax system needs urgent and comprehensive reform but no government has been brave enough to face it due to fear of public backlash.
Now in the light of the COVID-19 pandemic, the existing problems have been highlighted but at the same time the public might be easily persuaded to back such reforms as the flaws in the system have been exposed.
This rare opportunity to address longstanding issues and improve the way tax is raised has been promoted by the Institute of Government in the aftermath of this crisis. And there is even a mood to move to a higher tax system as it was indicated by the public mood.
There is also an opinion that the State should pay a large role in people’s lives with higher spending for healthcare, welfare and social care. But all that will not happen without wholesale reform in tax and taxing offshore capital, considers IfG.
There are long-standing calls from IFG for tax reforms and in their recent report in December 2019, they wrote that tax system is too complicated for the normal person and even for experienced professionals and it also current regime is creating too many grey areas and unintended consequences.
Although introducing changes quickly might reduce the time for proper consultation and review, it is important that the current opportunity and mood for change is not wasted, which will diminish the chances or fair tax reform.