A solicitor and insolvency expert says the tax system will be the key to helping businesses trade their way out of lockdown and help the economy recover.
Andrea Knox, a director at Knox Commercial and Insolvency Solicitors, in Colwyn Bay and M-SParc, Anglesey, says the rapid rollout of grants has been a crucial "quick remedy" to tide firms over.
But she believes the longer term cure can be found with adjustments to the tax system that can incentivise companies to trade.
She said: "I am sure that, at the back of our minds, we are all wondering how the economy is going to recover from this unprecedented disruption.
"Our beautiful North Wales scenery and associated tourist-focussed economy means many of our local businesses in the hospitality, travel and tourism sectors have been and will continue to be particularly hard hit.
"When lockdown is eased, there will be many options open to the government if they wish to try to support these businesses (and, indeed, businesses in general).
"My own view is that any such support should be designed so that it positively encourages the behaviour that is sought, which I suggest should be businesses returning to trade in order to stimulate the economy.
"A return to trade in sectors such as hospitality is likely to be less profitable than it was before, due to the increased expenses to create a safe environment and the reduced turnover likely in the initial months following the lifting of lockdown.
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"Grants are an excellent initial quick remedy to provide immediate cash flow but can create results that are somewhat of a lottery and also are not linked directly to any given behaviour (an outcome is not guaranteed).
"Whilst I am full of admiration for the speed that the various grants were put into place, I don’t see grants as being a medium-term or long-term solution.
"Similarly, I also don’t feel that loans will provide the answer for businesses whose previous profitable trading will become marginal or loss-making in an environment of social distancing measures.
"Furthermore, customer numbers will be reduced whilst public confidence in socialising and travel takes time to be restored. It would not be responsible for a business owner to borrow further against such a backdrop, nor for a lender to lend to them.
"VAT deferral was an excellent instant measure but deferred VAT will still need to be repaid by 31 st March 2021 so it is akin to a loan."
She has put forward a potential way forward.
Ms Knox said: "The approach that I envisage working has the infrastructure in place already to enable it to be implemented with relative ease. It is based on the existing tax system, in particular VAT.
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"At present, a standard VAT registered business sells its goods and charges VAT to its customers, usually at 20%. It buys its supplies and pays VAT to its suppliers on these purchases. It pays over the net amount (VAT received on sales less VAT paid on supplies) to HMRC.
"A simple way to stimulate trade in more difficult trading conditions in certain sectors (“Rescue Sectors”) would be for such businesses to continue to charge VAT at 20% (so sell at the same pre-Covid prices). However, in Rescue Sectors, businesses would account for a lesser percentage or even no longer have to account to HMRC for this VAT received.
"For a sector in need of extreme rescue, the business might be able to reclaim all of the VAT on its supplies and not account for any output (sales) VAT at all.
"This has the economic effect of a grant as opposed to a loan (free money for working capital) but is only accessed by businesses exhibiting the behaviour sought (trading in difficult conditions). Different percentages could be utilised for different sectors where different levels of financial support are required.
"As VAT registration can be done on a voluntary basis before a business reaches the VAT turnover threshold, a business could elect to register in a regime that allowed them to then reclaim input (purchases) VAT without paying output (sales) VAT so it could also benefit businesses currently not registered for VAT.
"It could even be expanded into the PAYE system in certain highly-staffed Rescue Sectors (eg. hospitality) so businesses could retain PAYE they would otherwise have paid to HMRC.
"A replacement for the furlough arrangements is needed to safeguard jobs and to facilitate the return to work.
"This proposed rescue package could easily be varied (monthly or quarterly depending on its effect) and indeed eventually phased out: it is simply a matter of adjusting the percentages and sector eligibility.
"I would be very interested to hear the thoughts of others on what sort of behaviour-driven incentives might help the economy during its recovery."