Elected – and now what?
We have new Labour Government and plenty of promises, but what will the impact be on business?
They’ve promised to freeze National Insurance, Income Tax, VAT, and Corporation Tax, but what does that really mean?
While they’ve said they’ll freeze the VAT rate, there’s a strong likelihood that the turnover threshold for being required to register for VAT will reduce. It’s currently at £90K, but it’s on the cards that will come down, maybe to as low as £50K. That’s going to mean that many smaller businesses will find themselves in a situation where their fees go up by 20%, meaning further increases will be unwelcome – we’re talking about your local builder, handyman, gardener and even the dance school or martial arts classes.
Corporation Tax is already high at 25%, so freezing it doesn’t really offer any benefits.
Having said that the promises do mean more stability for business owners.
Where is the money going to come from?
The Labour Government don’t have a small forest of money trees, so they still have to find the money to pay for the other things in their manifesto.
They have promised that they’ll only institute one big fiscal change a year and the new Chancellor, Rachel Reeves, is likely to present the first budget sooner rather than later.
There’s no mention of freezing Capital Gains Tax, so that’s in the firing line.
Private schools will almost certainly find that they are required to charge VAT on school fees and pay business rates. This is likely to have a big impact on the school’s viability, especially for the smaller schools where parents are already stretched to afford the fees. It will have an impact on what schools are able to offer, if their overall income is reduced either from having to absorb some of the VAT to remain viable, or through losing pupils as private education become unaffordable for some families.
The current annual pension allowance of up to £60K with no lifetime cap is likely to be reined in.
The Conservatives had plans to restructure the arrangements in regard to non-domiciled residents tax arrangements and labour has plans to follow through on this, although perhaps with different ideas about how it should be done.
Other issues the new Government is aiming to tackle are:
- Increasing stamp duty on residential property purchased by non-UK residents.
- Stopping offshore trusts being used to avoid inheritance tax.
- Closing the carried interest loophole for private equity owners.
- Cracking down on tax avoidance.
It’s early days and everything is still pretty broad brush, it remains to be seen what takes priority and how soon the proposed changes can actually be passed through Parliament and put into practice.
