Given the rumours that had been circulating prior to Budget Day of a radical change in the taxation of Capital Gains Tax, the actual Budget was a relatively mild affair.
Clearly, in the long term, the huge costs of Covid 19 need to be dealt with. But in the short term the Chancellor recognised the fragile state the economy was in and the necessity to nurse it back to health.
He has placed much needed emphasis on helping small companies and the damaged leisure and hospitality industry.
The freezing of tax allowances and bands will, assuming income rises, slowly draw more people into higher rate tax, but it does mean that nobody sees an immediate reduction in their tax home pay.
It was pleasant for once that no attempt was made to increase tax via the ‘back door’ using national insurance, which has often been a popular route in the past.
The plans to increase investment in HM Revenue & Customs to improve the service levels to taxpayers are long needed, especially as HMRC currently faces extra burdens administering Coronavirus relief payments and the ramifications of Brexit.
The increase in the mainstream CT tax rate was widely anticipated given how low our rate was compared to other G7 countries but is still set at a rate where it is competitive. For smaller companies the lower tax rate will remain to protect them from this tax blow.
Enhanced reliefs for business capital investment should serve to both help companies and boost the economy.
Given the likelihood of companies making losses in the current situation, extra flexibility to use losses over a wider period is very welcome to ease cash flow.
Value Added Tax
The leisure and hospitality industry has probably been the part of the economy most severely hit by the various lockdown rules.
The 5 per cent reduced rate of VAT introduced to help them is now to be available for an extra six months, and instead of jumping up to 20 per cent after this, will be held at 12.5 per cent for a further six months.
Given the blows that have hit the industry, anything which helps them rebuild must be welcomed. This will produce reduced prices for consumers while allowing businesses to rebuild their markets.
In many ways this was a defensive Budget, primarily aimed at allowing the economy time to recover.
Sadly, we must accept that, at some stage, the costs of the past year will need to be paid and we are likely to all have to share some of the pain.
Long term it is agreed that the tax system is too complex and certain areas, such as CGT and Inheritance Tax should be reviewed and probably reformed.
Some idea of what the Chancellor has in mind should become available on 23 March when a number of consultations are to be released. This should give us a clearer idea of the long-term strategy for tax policy.