Will new PM Liz Truss deliver on her tax cut promises, experts ask

Liz Truss is set to become the next UK prime minister, but business leaders and tax experts are questioning whether she will deliver on her promise to cut taxes.

The new prime minister has promised to slash taxes for British SMEs and said her government would “stop putting so much red tape, so much tax on business”.

As a “pro business” prime minister is pledging tax cuts she claims will cost £38 billion annually, including a cancellation of the recent national insurance (NI) increase and scrapping a planned six percentage point hike in corporation tax for the UK’s most profitable companies.

Commenting on Liz Truss’ victory, Adrian Young, tax partner at accounting and business advisory firm HURST, said: “The new prime minister is going to find delivering on her tax promises much harder than grandstanding to the Tory faithful.

“The thinking here, no doubt, is that it will boost investment and hopefully help retain the UK’s position as a competitive tax destination for business, which in turn will help fend off any post-Brexit isolation,” said Young.

“Her proposals will have won her approving nods, and votes, from Tory faithful tired of Sunak’s unpopular tax-and-spend policies, and her promises certainly seem very generous. The reality of running the economy, and all the competing demands this brings, will be far harder to deal with,” he added.

IR35 review: an ‘empty promise’

Truss has also said she will review IR35 tax rules for off-payroll workers which came into effect in April 2021.

However, a recent Qdos poll of 476 contractors revealed that 94% of those surveyed believe Truss’ pledge to review IR35 is an “empty promise”.

“For far too long, freelancers, contractors and self-employed workers have been overlooked by the government and hit with short-sighted tax reforms and hikes that threaten this way of working,” said Maley.

“Truss has said she will review the IR35 rules, which are flawed and create big problems not just for contractors but also for the businesses engaging them. An independent review of IR35 that results in change must be prioritised – that is if the new Prime Minister genuinely wants to unlock the full potential of the flexible workforce,” he added.

Dominic Wade, co-founder of specialist finance and accountancy recruitment firm Wade Macdonald added that the IR35 rules are “one of the most ill-conceived pieces of legislation ever to be inflicted on UK business.”

“The UK has historically been famous for having a highly adaptable flexible workforce and IR35 legislation has shackled this to a significant extent,” said Wade.

“Whilst it is important that we all contribute a fair share of taxes, does it matter whether that is via income tax or a combination of corporation tax and dividend tax? Additionally, transferring liability to the fee payer (often a recruitment business or alternatively the end client) is grossly unfair and diminishes the willingness of companies to use the best flexible talent,” added Wade.

Inflationary pressures

Glenn Collins, interim head at the Association of Chartered Certified Accountants (ACCA), has called on the new prime minister to make tax simplification a “key priority”.

“While tax cuts may provide much-needed relief to mitigate crippling cost increases being felt by small businesses, this needs to be balanced against the need for continued investment required to deliver effective government infrastructure, such as HMRC service standards,” said Collins.

“This in turn will rebuild much needed trust in government and business through reforms to tax and audit.

“The intense cost pressures facing businesses means cashflow management is crucial. Seeking out the forecasting skills of financial advisors will be an important way for SMEs to weather the economic storm,” he added.

Roan Lavery, FreeAgent co-founder and CEO, also urged the new prime minister to support SMEs to help the UK economy recover from its impending recession.

“SMEs are the backbone of the economy. Due to their nimble and innovative nature, they are also likely to be the businesses that will lead the UK economy back to prosperity. But in order to do this, they require the right support – including better access to finance that can help them through these difficult times,” said Lavery.

“The more help we can provide to smaller businesses now, the quicker they will be able to drive the UK’s recovery in the future,” he added.

Truss won the conservative leadership contest with 81,326 votes, overtaking Rushi Sunak by more than 20,000 votes.