Last year, we saw an increase in corporation tax, a lowered additional income tax threshold, a freeze on personal allowance, decreased tax-free dividends, and a reduced tax-free allowance on capital gains. In short, a lot can change – and that’s without adding a general election to the mix.
As the 4th of July looms closer, we know that, as a business owner, you’ll have the election on your mind. It can be overwhelming trying to keep up with each party’s proposed policies, and even harder to plan for changes that you might not even know could happen. That’s why we’ve created this guide to highlight some of the most important issues for business owners and tell you what the two major parties, Conservative and Labour, are saying about them.
Tax Changes
We’ll start with the big one – depending on who wins the election, there could be significant changes in everything from VAT and Capital Gains Tax to National Insurance and Corporation Tax. Here’s what we know so far:
Tax Compliance and Administration
The Labour Party wants to modernise HMRC and change the law as a means of tackling tax avoidance (with a focus on large businesses and the wealthy). This would involve increasing registration and reporting requirements, strengthening HMRC’s powers, and investing in new technology to build capacity within HMRC.
VAT
The Conservative Party has pledged not to increase the rate of VAT and they intend to keep the VAT threshold under review. Meanwhile, Labour has vowed to end the VAT exemption and business rates relief for private schools. On the whole, however, VAT policy looks likely to remain widely unchanged under either party.
Corporation Tax
The Conservatives have pledged not to increase corporation tax, and Labour wishes to cap it at the current level of 25% – again, it looks likely that there will not be a great deal of change in this area.
Capital Gains Tax
Capital Gains Tax has already seen some changes over the past few years. The Conservatives have pledged not to increase capital gains tax and intend to both maintain the Private Residence Relief to protect homes from CGT and introduce a two-year temporary CGT relief for landlords who sell to their existing tenants.
Labour has not ruled out a change in Capital Gains Tax in its manifesto.
Inheritance Tax
Both parties are planning to abolish the remittance basis of taxation for non-doms – instead, under these plans, a new residence-based regime will be implemented, with inheritance tax moving to a residence-based regime from April 2025. With the Conservatives’ plans, there will be a temporary 50% exemption for the taxation of foreign income for the first year of this regime. With Labour’s plans, all assets held within a trust will be subject to inheritance tax.
Income Tax
The Conservatives and Labour do not plan to increase the basic, higher or additional rates of income tax, and both parties plan to freeze thresholds until 2028, meaning it will likely remain at £12,570.
National Insurance
The Conservatives plan to cut another 2p from employee NI, meaning it would be halved to 6% by April 2027. This would cut NI by £1,350 for the average worker on £35,000. They also want to abolish the main rate of NI contributions for the self-employed, so 93% of all self-employed people would no longer pay self-employed National Insurance.
Labour does not plan to increase national insurance.
Changes to Pension Rules
The Conservatives want to introduce the new ‘Triple Lock Plus’ which would guarantee that the tax-free allowance for pensioners will always rise with inflation, earnings or by 2.5%, whichever is highest. They also plan to implement a new age-related personal allowance intended to increase the personal allowance for pensioners.
Meanwhile, Labour plans to retain the current triple lock for the state pension and introduce reforms for workplace pensions, as well as reintroducing the Lifetime Allowance for pensions which limited the total value an individual’s private pension could reach before tax. They also pledge to increase investment from pension funds in UK markets and adopt reforms to ensure workplace pension schemes take advantage of consolidation and scale.
Changes to Employment Law
Labour pledges to deliver “A New Deal for Working People” which includes bans on zero hours contracts and fire and rehire, and the introduction of basic rights from day one to parental leave, sick pay, and protection from unfair dismissal. A Single Enforcement Body would be created to uphold employment rights. Finally, age bands on the minimum wage would be removed so that all adults would be entitled to the same rate.
Further Business Policies
Additional business policies proposed by the Conservative Party include:
- Expanding Open Finance and exploring the creation of Regional Mutual Banks
- Lifting the employee threshold for reporting requirements (allowing more companies to be considered medium-sized)
- Continuing to back Investment Zones across the country
- Improving enforcement of the Prompt Payment Code
- Increasing public spending on R&D
And from Labour, they are:
- Scrapping short funding cycles for R&D institutions in favour of ten-year budgets
- Establishing an Industrial Strategy Council to end short-term economic policy-making
- Creating Open Banking and Open Finance to support innovation and growth in the sector
- Taking action on late payments
- Improved guidance and removed barriers to exporting for small businesses
- Reforming the British Business Bank and procurement rules to grant small and medium businesses greater access to government contracts
How to Prepare for Change
To help future-proof your business, one of the best things that you can do is stay informed. Business websites such as the Chartered Institute of Taxation provide regular updates on different parties’ proposed business and tax policies – for example, for the Conservatives and Labour. Additionally, the Conservatives, the Green Party, Labour, the Liberal Democrats and the SNP have all released their manifestos online.
It’s a good idea to engage with local business communities. By networking with other business owners you can exchange support and information, whether in-person or online via forums.
Make sure you review and adjust your business plan as needed when you’re considering these potential changes – being flexible will help you adapt and stay ahead.
And of course, you can always seek professional advice. At Benson Wood, we’re only ever a phone call away and we’d be happy to provide you with personalised advice to guide you through the changing business landscape. Contact us today.
