Small business and the self-employed should get a tax refund to cover their Covid losses, an influential Treasury select committee has recommended.
Under a “loss carry-back” scheme, any business, whether it’s a limited company or a sole trader, would get a cheque back from HMRC reimbursing them for Covid losses, providing they paid tax in Britain for three years before the pandemic.
A similar policy was adopted during economic crises in 1991 and 2008.
The Government should also look favourably on a further extension of the Annual Investment Allowance – which provides tax relief for expenditure on most plant and machinery – and possibly keep it permanent at the current level.
In its Tax After Coronavirus report, the select committee says that now is not the time for tax rises or clawing money back post pandemic. That said, significant fiscal measures, including revenue raising, will possibly be needed in the future, MPs said.
A moderate increase in corporation tax could raise revenue without damaging growth, the committee agreed.
Rishi Sunak is reportedly going to announce a stepped increase in corporation tax from 19 per cent today up to 25 per cent, as it is the fourth largest lever he can pull when it comes to taxation. Most small businesses though fail to make a profit.
Mel Stride MP, who chaired the treasury committee, said: “Tax is often an area of significant disagreement between parties, so I am particularly pleased that the cross-party Treasury Committee has unanimously agreed this report for our Tax After Coronavirus inquiry.
“With our public finances on an unsustainable long-term trajectory, our clear message is that Budget 2021 is not the time for tax rises or fiscal consolidation, which could undermine the economic recovery. But we will probably need to see significant fiscal measures, including revenue raising, in the future.”