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Tax and VAT Coronavirus

POLICY UPDATE: Tax after Coronavirus

CFG's Policy Manager, Richard Sagar, provides an update on the Treasury committee's latest report on tax which warns that 'tax reform is needed to address unsustainable public finances'.

The Treasury committee has now produced their report on ‘Tax after Coronavirus’.

CFG alongside Charity Tax Group, NCVO and Chartered Institute of Fundraising, produced a response to the call for evidence which highlighted our joint proposals to the committee.

This evidence included: The importance of protecting and improving tax reliefs for charities; the importance of philanthropy and individual giving to the COVID-19 recovery; and improving consultation with the charity sector on tax policy and tax reform.

While it is disappointing that the committee did not highlight our proposals, they did draw attention to a number of issues which will be of interest to the sector. These include:

  • That now is not the time for tax rises or fiscal consolidation, but significant fiscal measures, including revenue raising, will probably be needed in the future.

  • Raising tax revenue quickly and at a large scale is likely to require higher contributions from one or more of income tax, national insurance, and VAT. Which would call into question the government’s ‘tax lock’. However, this could be achieved by freezing income tax thresholds.

  • The Government should set out a tax strategy for what it wants to achieve from the tax system and identify high level objectives.

  • The committee does not recommend replacing VAT with a retail sales tax or making any significant changes to the scope of VAT. In addition they recommend that:

The Government should, following consultation, set out principles and objectives for the VAT system now that VAT is free from EU law. This should include a framework within which new reliefs can be assessed or existing ones withdrawn. The Government should ensure that the principles balance revenue raising, economic growth and other objectives, such as improving the quality of the environment and 'levelling up'.

This does provide the opportunity to reduce the financial burden of irrecoverable VAT for the charity sector.

We will look with interest at the upcoming budget on 3 March and HMRC Tax day’ on 23 March, which will provide further information on a number of tax consultations, including further information on the government’s fundamental review of business rates.

 

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