Since our last blog on this subject, the party manifestos have been published, so we now have a clearer picture of what the tax landscape might look like in the event of a majority government for any of the three national parties, and where common ground could be found in the event of another hung parliament.
“If a single Budget had contained all these tax and spending proposals we would have been calling it modest.” Paul Johnson, Director, Institute of Fiscal Studies
The Conservative party has adopted a fairly bland approach to taxation policy in its manifesto, with no sign of the tax reductions for middle income earners that had been hinted at when Boris Johnson was running for leader. That is not to say there have not been some unexpected announcements, most notably, the postponement of the corporation tax rate reduction, and the increase in the National Insurance threshold for individuals.
The headline tax policies introduced in the manifesto are:
- No increases to income tax, National Insurance or VAT
- National Insurance:
- Threshold increasing to £9,500 initially, with a long term aim of £12,500 (aligned with income tax).
- Employment Allowance increasing to £4,000 for small businesses.
- One year NIC holiday for employers hiring individuals who have left the armed forces within the last year.
- Capital gains tax: Reform of Entrepreneur’s relief.
- Corporation tax: To remain at 19% in 2020 (reduction to 17% postponed).
- Corporate and business incentives:
- Business rates: Fundamental review, reductions for retail businesses, discount for grassroots music venues, small cinemas and pubs.
- Stamp duty land tax: Additional 3% levy for non-UK resident investors in property.
- VAT: remove VAT from female sanitary products
- Anti avoidance:
- End Construction Industry Scheme abuse.
- Tightening DOTAS requirements.
- Crack drown on illicit tobacco packaging and smuggling.
- Measures to counter profit shifting.
- Implement to Digital services Tax.
- Other taxes: Introduce a plastic packaging tax, £200/tonne where recycled content is less than 30%.
“If their proposals did raise the sums they suggest then we would be raising more in corporation tax, as a fraction of national income, than any other country in the G7…” Paul Johnson, Director, Institute of Fiscal Studies
In contrast, the Labour Party is proposing a radical tax and spend regime that would shake up every area of the fiscal landscape. Many of their proposed tax policies have been flagged up in advance of the manifesto launch, but the manifesto and the grey book that supports it make it clearer where exactly the taxation burden will lie under a Labour government.
- Income tax:
- Capital gains:
- Abolish entrepreneurs’ relief.
- Harmonise CGT rates with income tax rates by taxing gains taxed at the marginal income tax rate.
- Reduce the annual exemption to £1,000.
- Inheritance tax: Recent increases to the nil rate band to be reversed, most likely by removing the residence nil rate band.
- Corporation tax:
- Large companies’ rate 26% by April 2022 (21% April 2020, 24% April 2021), presumably to apply for taxable profits in excess of £1.5 million.
- Small companies’ rate 21% for taxable profits less than £300,000 – meaning a return to the marginal rate for companies in between the large and small rate thresholds?
- Corporate tax reliefs to be reviewed and reformed or abolished where they are not achieving objectives. New corporate tax reliefs to include a “sunset clause”.
- Phase out R&D Expenditure Credit and abolish patent box, but maintain SME R&D tax relief.
- Levy on overseas companies buying housing.
- Second homes tax: Annual levy up to 200% of current council tax bill.
- No increase to the rate of VAT.
- Private school fees to lose VAT exemption.
- Financial transactions tax: Extend the transactions to which Stamp Duty Reserve Tax applies.
- Anti avoidance: tax multinationals where economic activity occurs and where value is created.
- Making Tax Digital: Quarterly reporting will not be extended to businesses below the VAT threshold.
- Other taxes:
- Windfall tax on oil and gas companies.
- Sugar levy extended to milky drinks.
As polls stand at the moment it looks as though the best the Liberal Democrats can hope for is to hold the balance of power in another hung parliament. That is not to say, though, that they would not have a significant influence on the tax landscape for the life of that parliament, and so it is worth considering where there is overlap in their tax proposals with those of their main rivals.
- Income tax:
- Basic rate 21%, higher rate 41%, additional rate 46%.
- Abolish the marriage tax allowance for low earners.
- Capital gains tax:
- Replace the current annual exemption with a single allowance that covers both income and capital gains tax.
- No mention of changes to CGT rates or Entrepreneurs’ Relief.
- Corporation tax:
- Increase rate to 20%.
- Review recent changes to IR35 rules.
- Extend R&D tax relief to cover the costs of datasets and cloud computing.
- Tailored industry specific tax support for the creative industries, including video gaming.
- Business rates: To be replaced by a land value tax charged to the property owner.
- Introduce a further General Anti-Avoidance rule.
- Reform permanent establishment rules to counter profit shifting by multinationals.
- Support the OECD’s proposals on taxing multinationals on sales in the countries in which they operate.
- Improve the Digital Sales Tax.
- Other measures:
- End retrospective tax changes, such as the loan charge.
- Simplify the tax system for SMEs.
In the event of a hung parliament, the other parties, including the various Nationalist and Green Party, would also demand an input into tax policy as part of the price for their support.
The truth is that it would take a very brave forecaster to predict with any confidence what colour of government we will wake up to on 13 December. As a result, the likely tax position for the UK’s individuals and businesses is the most uncertain that it has been for years, but whether the UK electorate votes for steady as she goes or for radical change, one thing is certain: Ensors will still be here to help you navigate the new fiscal landscape.