Paying for Lockdown

COVID 19 has plunged the world into the biggest economic slump for 300 years. Hundreds of billions of pounds have been spent supporting the economy and attempting to protect jobs. Sooner or later all of that will have to be paid for and the Chancellor has started to float a few ideas.

Online sales tax

One of the most high-profile announcements so far has been the proposed online sales tax. The tax was floated in a call for evidence which is expected to conclude in Spring 2021. The consultation paper is intended to explore “the potential strengths and weaknesses of alternative property and online taxes put forward as possible replacements for rates.”

Sunak is said to be considering two types of online retail tax: a levy of 2% for all goods purchased online and a tax on consumer deliveries designed to reduce traffic and pollution. The Treasury hopes the first tax will bring in revenue of about £2bn per year and could encourage more people to support traditional shops.

Many high street firms have been calling for an online tax for some time to protect traditional shops. Even before the pandemic, the high street had been in decline, but as COVID 19 forced the nation into lockdown, online sales soared.

Tens of thousands of jobs have already been lost on the high street as retailers battle to cope with the devastating effects on their revenue. Travel firm Tui is set to close 166 branches nationwide, William Hill is closing 119 outlets, while WH Smith has announced 1,500 jobs are at risk.

However, the British Retail Consortium has been vocal in its opposition to the decision, warning that it could push up prices for consumers at a time when personal incomes will be coming under intense pressure.

“Taxing the sale or delivery of online goods would simply be another burden on an already overtaxed industry, one that would ultimately hit consumer spending through higher prices,” said Tom Ironside Director of Business and Regulation at the BRC. “Throughout the pandemic, many of us have been relying on retailers to ramp up their online services to ensure we can all get the goods we need. The Government should not harm these efforts by further taxing the businesses providing these services, and the people they serve.”

Pros and cons

The proposed tax would rebalance the playing field to a certain extent between the high street and online retailers. Traditional shops are not, as many people believe, fundamentally unprofitable, but they are at a distinct disadvantage compared to online competitors because they have to pay business rates on their premises.

Those rates can sometimes be punitive and The CBI has called for a review of the system which is calls ‘uneconomical, unsustainable and unintelligible.” At a CBI conference, John Allan president of the CBI told business leaders: “The business rates system has – over time – become uneconomical, unsustainable, and frankly, unintelligible. Debenhams, once a stronghold of the British high street, fell into administration. But I’ve yet to read an explanation that doesn’t cite business rates as at least part of the cause.”

From a revenue point of view, the tax could be valuable. Aside from the £2bn that the Chancellor expects it to raise, the tax could also arrest a shift of tax receipts to lower tax jurisdictions by keeping business on the high street. The current business rates regime nets the Treasury approximately £8bn every year; protecting this revenue stream will also be important for a Government looking to safeguard vulnerable finances.

Higher prices?

On the downside, the tax will inevitably mean price rises for many consumers shopping online. For many vulnerable people, the ability to shop online and have goods delivered to the door allows them to avoid the inevitable risks of venturing out into the community. At a time when the Government is warning of the potential of a second wave, this could effectively constitute a tax for millions of vulnerable and disabled people.

Many of the businesses selling online will also operate a bricks and mortar store. As such, this could represent another tax on top of their existing business rates. It would punish those businesses who had successfully diversified their business models to offer omnichannel sales opportunities in response to the growth of online retail.

Other taxes

Other areas likely to come under scrutiny include a possible raid on capital gains tax. The Government has called for a review on CGT in a move which some feel could be the starting pistol for a tax grab. He has also talked about ‘tough choices’ ahead prompting many to feel tax rises could be on the horizon.

Although nothing is certain about this review, it is scheduled to end just before the Autumn mini budget giving him the opportunity to include a rise in the statement. It would certainly offer some low hanging fruit for any chancellor in search of revenue. It is most likely to hit the wealthy who should be better placed to survive the challenges of COVID 19.

Also expected before the Autumn budget, according to the Telegraph, could be an increase on Business Rates for valuable properties. The Chancellor is said to be seeking feedback from industry experts about whether a luxury shops, offices and other large buildings should be subject to higher business rates.

Other changes to keep an eye out for include the postponed changes to IR35. The Government delayed these changes until April 2021 due to Coronavirus and, while the new rules have faced plenty of opposition, it’s unlikely the Government will make any further changes or, as some may secretly hope, abandon the changes altogether.

Post furlough

As well as raising revenue, the Chancellor is balancing the task of minimising the economic fall out of COVID 19 while also avoiding a catastrophic impact on jobs and personal finance. Businesses are already seeing the role back of the Furlough scheme which sees them paying pensions contributions and NIC for furloughed employees. The scheme will come to an end in October, but the Government has announced a cushion in the form of a bonus for any businesses which keep a furloughed employee on for more than three months.

This will amount to £1,000 per employee and is effectively a bribe to persuade companies to avoid making redundancies. However, critics of the move which could cost a potential £9bn say it could represent a bonus for those companies fortunate enough not to need any redundancies. Others may decide to spare furloughed workers which could see many of those who continued to work throughout the pandemic finding themselves in the firing line.

Be prepared

Much of what’s been suggested is uncertain. However, what is clear is that the Chancellor will have to make moved to balance the book as the country recovers. These decisions could have a major impact on businesses, which means you will have to plan for multiple scenarios an ensure their operations are as flexible as possible.

This means getting as much control over your finances and your data as possible. Budgets will come under pressure and new rules could have unexpected impacts on revenue and costs. Those companies with a firm grip on their systems and who have a clear real time view of their current financial position as well as reliable future projections will be best placed to survive and thrive.