THE CONSERVATIVES will be able to finish what they started after all.
It is, by and large, good news for the UK’s businesses, which the party made great play of supporting in the previous government.
The Conservatives have campaigned on a largely pro-business platform, and over the last parliament lowered the headline rate of corporation tax to 20% from 28%.
That policy has chimed well with the City and big business, so much so that the FTSE 100 gained more than 1.6% in early trading as investors absorbed UK election results suggesting David Cameron will remain as prime minister.
Yet a majority for the Conservatives will mean change, particularly as they won’t be tempered by Liberal Democrat intervention. Tax reform will be more rapid, and there is certainly going to be a shake-up in the composition of the cabinet.
That means the well-liked and consistent figure of David Gauke may well be lost somewhat to the tax world with a promotion, which inevitably will mean familiarising and new Exchequer secretary with the trials and tribulations of the tax environment.
But while the business direction of the new government is fairly predictable, says the IoD’s Stephen Herring, the direction of travel on personal tax is less well understood.
It seems safe to say the non-dom regime will stay in place, although it is likely to be refined and updated.
Yet relaxation of the personal tax regime is only likely to follow once the Tories are sure the UK is economically out of the woods, Baker Tilly head of tax George Bull says.
However, it does seem likely they will, at some point, come under pressure to simplify. Indeed, the kinks of the effective 60% rate for earners between £100,000 and £120,000 and those in receipt of child benefit are unlikely to be welcome for much longer.
Not only that, the desire to amalgamate national insurance and income tax persists, although there is no immediate hook for bringing the two together just yet. As such, it appears a period of personal tax stability is to follow.
However, while David Cameron has promised to leave a whole raft of taxes untouched, the downside is that he is limited in the scope of what he can do.
In particular, Cameron pledged there will be no increases in the rates of VAT, income tax or national insurance. Additionally, he said the inheritance tax nil-rate band will be increased to exempt homes up to £1m and the UK will retain the most business-friendly tax regime in G20, which translates into retaining the UK’s existing 20% corporation tax rate.
Unless Cameron has the stomach to deal with U-turns early in the new parliament, he is left with few options, so tax rises in other areas appear inevitable as the government continues to pay down the deficit.
Calum Fuller is tax correspondent for both Accountancy Age and Financial Director
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