So how exactly are we going to pay back the COVID assistance money?

This week, a leaked Treasury document laid bare list of potential solutions to help balance the UK tax books following COVID19— including increments to income tax and death of the state benefits 'triple lock'.

(Extracts taken from article Distributed by The Financial Times 15 May 2020)

Of the considerable number of anticipated consequences brought about by the pandemic, one thing feels certain — sooner or later, taxes will need to rise. Handling the emergency has led to a massive surge in UK public spending. Combined with the effect a possible knock-on recession will have on tax income, the Financial Times estimates a deficit surpassing ￡335bn could be the outcome.

The chancellor Rishi Sunak faces incredibly difficult decisions. This is definitely going to be a "can't please all of the people all of the time" moment. Even with increased government borrowing there is still going to be a big hole to fill. While publicly unpopular, increasing some taxes would indicate a sign that ministers are getting the shortfall dealt with and is surely imminent as soon as we return to some form of working normality. Specialists accept the vast majority is bound to fall on the affluent — With the silver lining from a government perspective being the opportunity to "fix" the current UK fiscal system.

So what areas are likely to be the source of the pay back; And how will these be applied?

Pensions

Indeed, even before the pandemic, tax relief for high rate taxpayers was under danger. It cost ￡38bn in 2018-19 making it the costliest tax break, as indicated by the National Audit Office (NAO).

Restricting tax relief on all contributions to the basic rate of 20 percent has recently been estimated to raise more than ￡10bn every year. Again, this seems to be the "mass friendly" option, with many high earners still unaware of the additional relief via self-assessment. In spite of the fact that this would hit customary Tory voters, cutting pension advantages for the rich is probably not going to inspire a lot of open compassion when such huge numbers of individuals have been hit in the pocket.

John Cullinane, tax policy director at the Chartered Institute of Taxation, says that in time the chancellor could go further and return to plans to make pensions progressively more like Individual Savings Accounts, which are supported from taxed salary yet are draw on a tax free basis.

A harder political choice will be whether to end the "triple lock" on yearly increments to the state pension, which are guaranteed to be the higher of inflation, earning growth or 2.5 percent.

With inflation and increased earnings set to freeze for quite a while, specialists accept the 2.5 percent figure could come down — which could create yearly savings of ￡8bn, as per the Treasury report.

Personal Income Tax

This would be the fastest and most expansive method of raising income — it represents about one fourth of absolute tax income — however it would likewise be politically questionable as this goes starkly against the Tories pledge not to raise income tax. Would the general public however be more forgiving? Given that most people are aware that this "population bail out" will need to be repaid somehow. The cry will no doubt be “take from the richest” however a 1% increase on higher rate tax from 40% to 41% would only represent approx. increase of ￡1bn in annual tax revenue, however a 1% increment in basic from 20% to 21% would being in almost 5 times that level (English based Income Tax Bandings)

Mike Hodges of accountancy firm Saffrey Champness says the chancellor could include 1 percent for basic rate payers, scaling this up to 3 and 5 percent for higher and extra rate payers (making new rates of 21, 43 and 50 percent in England).

An alternative methodology — Staying with Income Tax — would be for the chancellor to remove the personal allowance; the ￡12,500 a year tax-exempt income threshold. Or a lower "starter rate" could be introduced.

Finally they may alter the income level at which tapering of the personal allowance starts (currently anyone earning over ￡100,000 has their allowance reduce by ￡1 for every ￡2 annual income over the ￡100,000 - Meaning any who reaches ￡125,000 will have depleted their allowance to zero)

National Insurance

At present, workers pay 12 percent national insurance contributions (NICs) on the cut of earnings somewhere in the range of ￡9,501 and ￡50,000, however only 2 percent on salary over this level. It has been suggested that if a level rate of 12 percent NICs was presented, an individual earning ￡100,000 would see a ￡5,000 decrease in their net yearly remuneration.

Given that this would impact the low earning population it may well be that the level at which NIC are started increases in conjunction with the rate hike - to ringfence some of the lower earning individuals.

Self Employed work

The chancellor put the UK's 5m self-employed on watch for increased NICs in April 2020 introducing the self-employed income support scheme (SEISS).

Self employed individuals earning more than ￡9,501 a year pay Class 4 NICs at 9 percent. Interestingly, the main rate employees pay is 12 percent. As businesses additionally pay NICs for staff on their workforce, the Institute for Fiscal Studies has contended that self employed NICs ought to be lined up with the combined rate of employer and employee NICs.

Such an extreme move would be greeted with a degree of distain; however, the IFS contends that business NICs fundamentally influence the expense of recruiting staff, which potentially could disrupt the employment cycle. Pre-COVID attempts to change tax assessment for the self-employed — including changes to IR35 legislation — have been required to be postponed, despite the fact that the government has vowed to come back to the issue.

Inheritance Tax (IHT) and Capital Gains Tax (CGT)

IHT has been earmarked for an overhaul for some time this gives the chancellor a lot of leeway to make changes. IHT however isn't the highest tax, realizing only around ￡5.4bn every year. In this manner, the government may consider replacing in with a system that charges when assets are transfer (in life or on death). There is also a chance that CGT allowances are reduced/removed and/or the current tax rates increased.

Property Tax

Even although Private Residence Relief is the second biggest tax break in the UK it is likely that steps within this areas are likely to be taken with trepidation - For fear of further damaging the property market - We are yet to see the true effect of property prices post COVID and also await clarification on public sentiment from a buyer/seller point of view. The last thing we need while in this precarious position is a property crash. So, while not entirely impossible any major changes here are commonly thought of as unlikely.