The coronavirus pandemic has accelerated the introduction of wide-ranging global tax reforms. Businesses and tax advisers have been struggling to cope with the changes – and wondering if they have been subject to the usual scrutiny.
Tax is changing so fast that businesses are having to work flat out to keep up. Tax teams are trying to unravel all of the options to determine the best course of action to keep their organisation afloat, but it is proving a struggle.
HMRC is being helpful towards businesses while trying to protect its tax revenue, says one tax adviser who prefers not to be named. A lot of new legislation is being rushed through to help manage those conflicting needs.
In June, tax advisers saw a whole list of amendments to deal with complications of the Coronavirus Job Retention Scheme (CJRS), and powers that HMRC wants in order to claw back money that has been overclaimed. Draft legislation like this normally goes through a very long process; this time it will be law within weeks.
The tax reforms taking place are unlikely to be reversed once the pandemic subsides, and could become increasingly hard to swallow.
In the medium to long term, it is expected that the government will have to raise taxes. With an ageing population, it could be argued the UK was already heading in that direction. But with the accelerating demand for public services, and rising public debt, the move to a higher tax regime may come sooner than many thought and could involve radical changes.
While finance teams in larger businesses are coping, albeit under strain, many small and medium-sized companies, with their limited resources, are relying on accounting firms to try to find a way through the crisis.
Chris Conway ACA, Director of Multiply Accountancy, says the past few months have been relentless. “No one’s prepared. Everything’s changing so fast. Whether you’re in-house or in practice, it’s pretty much about just seeing what you can work out.”
Some of the advice goes against common sense, he explains. Take Employment Allowance (EA): organisations would usually apply that in the early months of the financial year to delay their Employer’s National Insurance payments. Now, due to the CJRS, the logic is to apply EA later on.
“We’re aware of a situation where an employee has been made redundant rather than being furloughed because they are using up the EA,” says Conway. “This person, who was being made redundant but could have benefitted from furlough, was using up the allowance that could be used in the future against ER NIC of continuing employees. There’s no guidance.”
Common theme to global measures
The picture is much the same across the world, with businesses trying to keep their heads above water and taking advantage of whatever relief measures are available. There are common trends emerging.
“What’s interesting is how much consistency there is around the world,” says Rob Mander, an international tax consultant for RSM International. “The measures that governments have put into place are things such as tax deferral and workforce management. It’s all about cash flow and liquidity, and that might extend into grants, credit facilities and guarantees.”
Countries including Albania, Japan, the Bahamas, Canada and Germany have allowed tax deferrals for companies struggling through the crisis. Others are offering grants to businesses and the self-employed.
Mander points to the carry-back rules in the US and Singapore as examples of good measures to help in the short to medium term. He says: “If you’ve got a company that was profitable in 2019 and then it falls into a loss situation in 2020, carrying back losses says ‘this company was profitable’. It was taxpaying, presumably, and we want to reinforce and maintain profitable businesses.”
In Australia, you can cash out certain benefits, such as research and development concessions, adds Mander. “It’s a nice thing to have on your balance sheet, but in COVID-19 territory, you want to have that money in the bank account.”
There are lessons to be drawn from what the rest of the world is doing, but it’s not as simple as taking those measures and applying them in the UK, says Anita Monteith, Technical Lead and Senior Policy Adviser for ICAEW’s Tax Faculty.
“Businesses are all different and will respond to this global crisis in their own way,” says Monteith. “Those swift to adapt their business model will be better placed to survive. The need to move to home-working has increased the use of IT and will have exposed many staff who were previously disconnected to new tools. As digitalisation of tax systems seems likely to continue, these new skills will help us to prepare for change in tax too.
“The downside is that we have to work with our existing tax system, which is complex, so change will take time. With patience I hope we can make the most of this opportunity to tackle some of the really difficult challenges in tax.”