More businesses that have suffered due to Covid-19 could be supported now, and tax Revenues increased if the Chancellor had allowed businesses that have suffered losses to exchange them for a Government cash payment.
Genevieve Morris, head of Corporate Tax at the firm said, “The recent Summer Statement by Chancellor Rishi Sunak outlined the Government’s next stage of response to the coronavirus pandemic – with a focus on job creation and retention, and targeted measures towards hard hit industries such as hospitality and leisure.”
She added: “However, did he miss a trick that would’ve enabled more businesses that have suffered to be supported now, yet ultimately increase tax revenue in the future?
“The Government should introduce a method where businesses can surrender their Covid-19 losses in exchange for an immediate cash payment. If the government did this not only would small businesses get the cash injection they so desperately need, but ultimately the measure will raise tax as the losses surrendered for a cash payment would not be available to shelter future profits at the higher corporation tax rate.
The mechanism already exists for SME’s that have qualifying R&D claims. Where these businesses have losses after claiming enhanced R&D tax relief, the losses can be sold to the Government in exchange for a cash payment equal to 14.5% of the losses.”
Genevieve said: “Whilst we all accept that taxes will almost certainly have to rise in the future to pay for the support provided during these difficult times, the Chancellor needs to take a long-term view. If the supporting measures such as the furlough scheme are withdrawn and at the same time businesses and individuals are hit with tax rises, the country will fall deeper into recession. Businesses that make losses don’t pay tax, and businesses which are forced to permanently close will never pay tax again.”