Posted in Category: Property Developers / December 10 2019
From Labour's hike in corporation tax and an additional higher rate £80,000 tax threshold, to Conservatives' tweak to employee national insurance and a corporation tax freeze, a raft of promises to reform business reliefs and reasons for raising more tax revenue, the election manifestos are expensive.
There is a fairly wide agreement that the UK Exchequer will need more money after Brexit. The big question is where the money will come from? Broadly, there are two choices: more borrowing or higher taxes.
If the election produces a Conservative government, the triple lock guarantee on tax rates plus the commitment not to raise too much tax from high earners limits the scope for the new Chancellor. Sajid Javid famously said that "he’s a low tax kind of guy", which means that the Conservative Party manifesto commitment to clamp down on tax dodgers should not be underestimated.
On the surface the majority of businesses do not face any immediate tax increases in the Conservative manifesto, unlike in the Labour and Liberal Democrat manifestos where corporation tax rises.
The Conservatives have put on hold the plan to cut the rate of corporation tax from 19%to 17% from 1 April 2020.
Labour set a three year plan to raise corporation tax to 26% by April 2022 while the Liberal Democrats will put a 1p across all bands including corporation tax to help fund the NHS.
Labour have indicated that they will increase corporate taxes to 26%, but re-introduce the small companies’ corporation tax rate, set at 21%. - this would seem to be a major step back, as the UK is widely regarded as a centre for promoting business and entrepreneurship and attracting international businesses to the UK. The international angle should not be underestimated, and a competitive corporate tax rate is fundamental.
The Liberal Democrats promise to raise corporation tax to 20% and keep the rate stable 'with a predictable future path.
We believe politicians from all parties should look at the way the UK raises and monitors corporate tax as these initiatives are as important as the headline rate of tax. The big picture is that corporation tax currently accounts for 9% of total tax receipts collected by HMRC, a small but not insignificant amount.
The UK has a comparatively low corporation tax rate and together with other favourable measures this makes the UK one of the most competitive fiscal environments in the world from a corporate taxation perspective.
In this way the UK corporate tax regime has a much bigger impact on the UK economy in overall terms than simply the tax revenue it generates – which is why it becomes such a focus for political discussion.
The Conservative manifesto also confirms that they would implement the digital services tax. The digital services tax charges a percentage on annual revenues generated by companies that provide digital services to or aimed at taxpayers, it is designed to target the silicon six - companies such as Amazon, Apple, Facebook, Google, Microsoft, and Netflix. Labour has no mention of digital services tax in their manifesto, whereas the Liberal Democrats plan to improve it.
The Conservatives have proposed a triple lock guarantee for pensioners which would secure the winter fuel payment, the older person’s bus pass and other pensioner benefits such as the free TV licences for over 75s.
Although they have indicated that they will increase the NIC threshold to £9,500 from the current £8,632 in 2020.
As the Cameron/Osborne government discovered, the credibility of the "triple lock" commitment not to raise income tax, national insurance or VAT rates quickly comes under strain as people see stealth taxes being used to boost the amount of tax they pay as a percentage of GDP.
On income tax, Labour is proposing a new £80,000 threshold where taxpayers will pay a 45p income tax rate. It will not change the basic 20% tax rate or the £12,500 tax free allowance. They also plan to re-introduce the 50% income tax band, starting at £123,000.
Labour also said it would not introduce any increases in VAT, income tax or national insurance for anyone earning less than £80,000, the top 5% of UK earners.
However, this has been met with scepticism. Senior research economist at the Institute for Fiscal Studies (IFS), Stuart Adam said: ‘To say that the increase in tax for the top 5% of earners wouldn’t increase tax for the other 95%, is clearly not true.’
Shah said: ‘If this is introduced, there would be a 67.5% effective rate of income tax on income between £100,000 and £123,000, because of the effect of the tapering of the personal allowance (currently £12,500) for income above £100,000.’
‘For someone earning £100,000 (and ignoring national insurance), Labour’s policy would leave them with net cash of £66,500 (effective rate of tax of 33.5%); Boris Johnson’s proposal would return net cash of £78,500 (effective rate of tax of 21.5%) – a difference of £1,000 per month. Under the current system, you would receive net cash of £72,500 (effective rate of tax of 27.5%).'
The Liberal Democrats propose raising £7bn a year in additional revenue by putting 1% on income tax rates across the board, with this money to be ringfenced for spending on the NHS and social care. The income they expect to generate is £31.3bn against expenditure of £62.9bn.
‘In short for every £1 of tax raised by increases in tax rates or new taxes, the Lib Dems are committed to £2 of additional spending.’
Labour plans to increase the current rate of capital gains tax (CGT) by 8% to 28%. Also, there is a possibility that they could align CGT rates to income tax rates, removing any differential.
The Conservatives have not mentioned any changes to CGT in their manifesto, whereas the Liberal Democrats have stated that they will remove the tax-free capital gains allowance.
Removing the CGT annual allowance (currently £12,000) could cost someone up to an extra £3,360 in capital gains tax. As the personal allowance is typically included in a person’s tax code as an allowance against earnings, it means anyone selling a small holding of shares for a gain will likely need to report these gains through self-assessment.
This could lead to thousands of taxpayers burdened with the requirement to complete tax returns each year. Unless they can become smarter with making tax digital, more people completing tax returns to collect minimal amount of tax will be the likely outcome of this.
All the parties appear to be taking a closer look at business tax reliefs with the Conservatives planning to review enterpeneur’s relief and Labour producing a 21-page document setting out radical proposals to reform business tax relief.
Shah said: ‘There has also been speculation around whether the 10% rate of entrepreneurs’ relief will remain. Whilst Labour have previously commented that entrepreneurs’ relief encourages and supports small businesses, there could be changes to the lifetime limit (currently £10m) and increasing the rate, possibly to 20%.
‘I would urge caution against any major reform, as entrepreneurs’ relief is a cornerstone of the UK’s entrepreneur regime, and if anything, there are strong grounds to increase the lifetime limit.’
The most radical approach to tax policy is from the Green party. They would like to merge national insurance, capital gains tax and inheritance tax into one consolidated income tax. They would also increase the rate of corporation tax to 24%.
The Brexit party are pledging to abolish inheritance tax all together and introduce a zero rate corporation tax for the first £10,000 of pre-tax profits for small businesses.
Both the Scottish Nationalist Party (SNP) and Plaid Cymru are both calling for further devolution of tax powers with the Welsh wanting parity with Scotland so they can improve their tax systems to better suit their individual needs.