As the manifestoes emerged this week it quickly became clear that some tax
measures had moved centre stage in the general election campaign, while others
became important because of their absence.
National Insurance continues to be the tax that the Tories are pinning their
hopes on. NI contributions are set to rise next year by 1% and the Tories have
attacked it as a tax on jobs.
Labour believes it is the fairest way to help protect frontline services. The
Tories now have a complex plan for rolling back much of the impending rise and
changing the thresholds so that there is a little less money on which to pay NI.
Next comes corporation tax. The Tories will cut it and have indicated a
desire to cut it further. Labour believes the rate should remain as it is.
But there have been indications that a reform of the capital allowances
regime will take place to pay for a Tory cut in corporation tax, while Labour
has been working in recent Budgets on offering more benefits through the system.
Then there is the elephant in the room. What will the election winner do with
Raising VAT would be less fair than a rise in NI, according to the Labour
manifesto. The party has ruled out extending the scope of VAT but does not rule
out a rise in the rate.
The Tories are in a similar position – apparently not ruling anything in or
out. The Liberal Democrats say they have no plans for a rise.
But a rise in VAT could easily raise billions and it will be a tempting
target for any new government grappling with the budget deficit.
At this stage in the game there are therefore a complex set of calculations
for accountants, businessmen and businesswomen to go through to formulate a
sense of who may or may not be the better government to vote for.
This isn’t an easy task. For example, matching a cut in corporation tax with
potentially losing capital allowances and an improved National Insurance
position is improbably difficult.
It will therefore be the campaign in which business attempts to divine the
best outcome without really being able to do the sums because of the plethora of
unknown variables that could foul up the calculations.
Indeed, a simple cost benefit analysis would be of no use. Accountants and
business will feel their way to a decision just as much as any other voter.
And those decisions, in the end, could have more to do with instinct and
personality than knowing the objective implications of policy.
Does Darwin's theory apply to taxation? Colin ponders...
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Changes to the tax system is urged to support the growth of entrepreneurs, found a report from the Grant Thornton UK, the Institute of Directors, and the Prelude Group