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Tax and the General Election: will businesses emerge as winners?

Mike Cooper, partner at Moore Stephens, sifts through the major parties' manifestos and discusses how their proposed tax changes will affect businesses

Mike Cooper, Partner at Moore Stephens, sifts through the major parties’ manifestos and discusses how their proposed tax changes will affect businesses

The outcome of General Elections can be momentous. This election may shape the future direction of the UK over the next half decade and either build on – or dismantle – the policies of the previous government.

Arguably, the 2017 vote is even more significant than usual, with Brexit overshadowing almost all policy decisions going forward, making it an uncertain time for businesses.

So, what is on the top of businesses’ tax reduction wish-lists? And are their top tax concerns being addressed by the major political parties?

The answer to the latter question seems to be a “no” – or at least not in the ways financial directors might like. Both the Conservative and Labour manifestos fail to fully tackle businesses’ top targets for tax reform.

According to a survey Moore Stephens conducted just before the Spring Budget, the top five taxes that most businesses want to see a reduction in are:

  1. Income tax
  2. Inheritance tax
  3. Business rates
  4. Stamp Duty Land Tax
  5. Capital Gains Tax

Of these, the main changes proposed appear to centre on two key taxes: income tax and business rates.

For FDs, changes in both these areas could have significant implications, so it’s worth looking over what each of the main parties are proposing.

Income taxes in the balance

When it comes to income tax, any major increases or reductions could have a sharp impact on disposable income and consumer spending power, and consequent revenue growth, as well as profitability. Simplification of the tax code would also be welcomed by many.

The Conservative manifesto includes a promise to increase the personal allowance for income tax to £12,500 and raise the higher rate tax band threshold to £50,000. However, no mention is made of when income tax rates generally may be reduced and uncertainty remains over the possible reintroduction of national insurance rises for the self-employed. As yet, the Conservative party has refused to confirm that there will be no rise in NICs.

However, both Labour and the Liberal Democrats are clearly committed to raising income tax rates. Although Labour plans to keep the basic and higher rate thresholds the same, they have been clear about their intention to raise taxes for the highest earners, bring down the threshold of the 45% income tax rate to £80,000 and introduce a 50% rate above £123,000. The Lib Dems propose adding 1% to all income tax rates, including those on dividend income.

Business rates reform

All three parties are committed to a review of business rates, with Labour and the Liberal Democrats both weighing up the possibility of replacing the current system with a ‘land value tax’.

Labour’s suggested package of reforms to business rates also includes using CPI indexation instead of RPI, and creating a new appeals system.

The Conservative manifesto commits to ‘longer-term reforms to the system’, including the possibility of self-assessments in the valuation process and a full review of the system to account for online businesses. However, it is not specific on timescales for these reforms.

Given that business rates are such a hot topic, with so many businesses facing significant increases compared to historic bills – undermining the bottom line – this remains a key area of contention.

Greater commitment to, and clarity on, reform in this area would be widely welcomed and many FDs are likely to be disappointed not to have seen more emphasis on tackling this issue.

Corporation tax – a cause for concern?

Corporation tax was not widely cited as a high priority for the businesses surveyed – largely because the UK already has one of the most competitive rates of any developed economy in the world.

However, how long this might last is now a moot point as the various manifestos outline the parties’ differing outlooks and approaches.

While the Conservatives say they will proceed with their plan to cut corporation tax to 17% by 2020, tax rises could be on the cards with Labour and the Lib Dems.

Labour’s manifesto outlines proposals to raise rates to 21% from next year, 24% the following year and 26% from 2020/21. Although there will be a small profits rate, this will still be 20% next year and 21% from 2020/21.

The Liberal Democrats plan to restore the corporation tax rate to 20%, with smaller businesses likely to be the priority for any future business tax cuts and system reforms aimed at ensuring the biggest multinationals cannot avoid their fair share.

With only one day to go until the election, these are major issues on FDs’ minds. Some businesses are likely to be disappointed by all parties’ positions on tax reductions.

Unusually, there appears to be no one stand-out contender to the claim to be the champion of business, entrepreneurship and low taxes.

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