Brexit & EconomyPoliticsConservative and Labour tax policies likely to disappoint businesses

Conservative and Labour tax policies likely to disappoint businesses

With the June 8 election fast approaching, we take a look at the tax policies outlined in the Conservative and Labour manifestos and how businesses are likely to respond to them

Conservative and Labour tax policies likely to disappoint businesses

With the June 8 election fast approaching, we take a look at the tax policies outlined in the Conservative and Labour manifestos and how businesses are likely to respond to them.

According to Mike Cooper, partner at top 10 firm Moore Stephens, “businesses are likely to be disappointed by both the Labour and Conservative parties’ positions on tax reductions” as the manifestos of the two major parties do not address businesses’ top tax concerns.

When Moore Stephens surveyed businesses on what taxes they would most like to see reduced, the top five were identified as income tax (22%), inheritance tax (19%), business rates (18%), stamp duty land tax (15%) and capital gains tax (8%).

Out of these the Conservative party has only addressed income tax and business rates, while the Labour party has proposed rises to income tax and inheritance tax and changes to business rates.

Here is a closer look at some of the tax reforms proposed in the parties’ manifestos:

 

Income tax

The Conservative Party has renewed 2010 pledges to increase personal allowance to £12,500 and increase the threshold for the higher rate tax band to £50,000.

Labour, meanwhile, has promised that only the top 5% of earners would be affected by tax rises – with the tax rate rising to 45p per pound for income above £80,000 and 50p for income over £123,000.

Labour has also proposed an “excessive pay levy” charging employers for any individual earning salary over £330,000.

Labour has promised that there will be no rises in national insurance, but the Conservatives have remained silent on the issue, following the removal of the controversial proposal to raise self-employed national insurance contributions (NICs)  from the Spring Budget.

Corporation tax

The Conservatives plan to reduce the current corporate tax rate of 19% to 17% by 2020. Conversely, Labour wants to increase it to 26%, but promises to “protect small businesses by reintroducing the lower small profits rate of corporation tax”.

Mike Cooper of Moore Stephens revealed that according to research, corporate tax cuts was not a top priority for businesses, with only 3% of respondents identifying it as concern. Cooper said: “A further reduction in corporation tax is likely to be seen as a ‘nice to have’ rather than a necessity by a lot of businesses – the UK already benefits from some of the lowest rates of any developed economy.

“Many business owners and employees would much rather see the higher rates of income tax reduced significantly, and the tax code simplified, in order to increase disposable income and stimulate consumer spending.”

Business rates

The Conservative manifesto includes a promise to undertake long-term reforms of business rates, such as increasing the frequency of revaluations, introducing the possibility of self-assessments and updating the system to appropriately address online businesses. However, the party has not given timelines for these propositions.

Labour has suggested a package of reforms to business rates, including switching from RPI to CPI indexation and creating a new appeals system.

Both the Conservative and Labour parties have said they do not intend to raise VAT.

Inheritance tax

In an additional document titled “Funding Britain’s Future” the Labour party has pledged to reduce inheritance tax thresholds. The current Conservative policy allows up to £850,000 in family property to be inherited by children, and Labour’s proposed change would mean that families inheriting a property over £425,000 would have to pay 40% tax.

Cooper commented that this is likely to incur a negative reaction from business owners, as “inheritance tax is a longer term concern for business owners as they need to know that they will be able to pass on their business wealth to their dependants without them having to break up the business to pay the inheritance tax bill.”

Making Tax Digital (MTD)

While MTD is not specifically mentioned in either manifesto, there is no evidence to indicate the Conservative party intend to abandon their original plans. The Labour party’s manifesto, however, pledges to “scrap quarterly reporting for businesses with a turnover of under £85,000”. The Institute of Chartered Accountants in England and Wales (ICAEW) called this a “positive deregulatory measure”.

Other tax reform concerns

Cooper added that businesses are likely to be further disappointed that the Conservatives have not planned any reduction in the rates of stamp duty land tax or confirmed that capital tax reliefs for entrepreneurs will remain in place.

Two economic approaches that are poles apart

Paul Johnson, director of the Institute for Fiscal Studies, commented on the parties’ disparate policy proposals: “In one sense the two main parties have rarely offered the British such a clear and substantial choice. One is promising relatively low levels of spending, tax and borrowing, while the other is promising a much bigger state.

Johnson added that both parties’ economic plans are more complex than they suggest, and “neither is being really honest with the public. It is likely that the Conservatives would either have to resort to tax or borrowing increases to bail out public services under increasing pressure, or would risk presiding over a decline in the quality of some of those services, including the NHS.

“Labour’s commitment to a much bigger public sector would require higher taxes that affect many of us. A bigger state than the one we have been used to is perfectly feasible as many countries have demonstrated, but Labour should not pretend that such a step-change could be funded entirely by a small minority at the very top.

“In particular the large increase in company taxation that they propose would undoubtedly affect a far broader group than that.”


Have you started your entry for the British Accountancy Awards 2017?

The Awards, taking place at the London Hilton on Park Lane on 13 October will celebrate excellence in accounting and finance in both practice and industry. This year, we will welcome over 600 guests from practices and firms all over the country to highlight those that have demonstrated excellence in their profession. Categories include “Accounting Innovation Project of the Year” and “Tax Team of the Year”. To view all the categories and see how to enter, please visit BritishAccountancyAwards.co.uk. Entries close 7 July.

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