General Election Manifestos

Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.

While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.

 

 

Labour

Economic stability

The manifesto identifies economic stability as its number one goal. It also commits that every commitment a Labour government makes will be based on sound money and economic stability.

It outlines two fiscal rules. First, the current budget moves into balance so that day-to-day costs are met by revenues. Secondly, debt must be falling as a share of the economy by the fifth year of the forecast.

There is also a commitment to strengthen the role of the Office for Budget Responsibility, allowing it financial oversight of every fiscal event or significant change to taxation or spending.

They also plan to appoint a fixed-term Covid Corruption Commissioner to recoup public money lost to fraud or waste.

Fiscal plan

Labour will replace non-dom status with a modern scheme for people genuinely in the country for a short period. As part of this process, the use of offshore trusts to avoid IHT will end.

They will modernise HMRC and change the law to tackle tax avoidance. They intend to increase registration and reporting requirements, strengthen HMRC’s powers, invest in new technology and build capacity within HMRC.

They  pay for their policies by measures including:

  • closing non-dom tax loopholes and investing in reducing tax avoidance
  • applying VAT and business rates to private schools
  • applying a 1% increase in stamp duty on purchases of residential property by non-UK residents
  • a windfall tax on oil and gas giants

They are planning on investing an additional £855m annually in HMRC. Given that HMRC is likely to be key to collecting all the extra tax to pay for their policies, this is nonetheless very welcome. Perhaps we will not have to wait so long for the phone to be answered.

Business Taxes

Labour will maintain the main corporation tax rate at 25%. It will also retain a permanent full expensing system for capital investment and the annual investment allowance for small businesses.

Taxation commitments

They are committed to ensuring taxes on working people are kept as low as possible and so will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT. This is of course just for England and Wales.

They are silent on capital gains tax and council tax.

 

 

Conservatives

If the polls are to be believed the measures announced are unlikely to become law. However, you never know.

Business pledges

They plan to change the child benefit clawback enabling families to take full advantage until their combined income reaches £120,000 and only taper off completely at £160,000.

Other promises include:

  1. Keep the VAT threshold under review and explore options to smooth the cliff edge at £90,000.
  2. Retain key tax incentives that encourage small businesses to grow, including the enterprise investment scheme, seed enterprise investment scheme, venture capital trusts, business asset disposal relief, agricultural property relief and business relief.
  3. No increase to capital gains tax.

They plan to abolish the main rate of national insurance contributions by the end of the next Parliament but only for the self-employed.

An extra 2% will be lopped off NI contributions but not until April 2027, at which time the rate would be 6%.

Their long-term ambition” is to keep cutting national insurance until it’s gone.

From April 2025 the personal allowance for pensioners will increase in line with the state pension, which may not be worth a vast amount of money but is a welcome simplification that will take millions out of the self-assessment system.

There is a commitment to clamp down on tax avoidance raising at least a further £6bn a year from tackling tax avoidance and evasion by the end of the Parliament.”

A £425,000 stamp duty threshold for first-time buyers will become permanent.

Inheritance tax is not mentioned and therefore will not be abolished in the foreseeable future.

 

 

Liberal Democrats

The manifesto includes promises to attack the cost-of-living crisis, invest in green infrastructure, innovation and skills and “Repair the broken relationship with Europe”.

The industrial strategy includes incentivisation of business investments, job creation and the roll-out of giga broadband to every home and business in the country. It also proposes various changes including:

  • Giving HMRC the resources it needs to properly tackle tax avoidance and evasion.
  • When finances permit, increase the personal allowance.
  • Reversing tax cuts for big banks, restoring Bank Surcharge and Bank Levy revenues to 2016 levels in real terms
  • Tripling the Digital Services Tax to 6%
  • Closing unspecified capital gains tax loopholes
  • Review IR35 reforms to ensure self-employed people are treated fairly.
  • Abolishing business rates and replacing them with a Commercial Landowner Levy.
  • boost R&D investment
  • Review UK excise duty to better support whiskey exports.
  • Establish a new “dependent contractor” status between employment and self-employment with basic rights such as minimum earnings, sick pay and holiday entitlement
  • Review the tax and national insurance status of employees, independent contractors and freelancers to ensure fairer and comparable treatment
  • For those on zero-hours contracts, set a minimum wage that is 20% higher than the norm
  • Give zero hours and agency workers a right that could not be unreasonably refused to request a fixed hours contract after 12 months
  • Shift the burden of proof in employment tribunals regarding employment status from individual to employer
  • Expand parental leave and pay, making them rights from day one

 

 

The Tax Gap and £6bn in Unpaid Taxes to Collect

Various parties are resting significant parts of their policy offerings on the recovery of £6bn in unpaid taxes every year.

This figure seems to have come from a report from the National Audit Office to Parliament that £6bn a year could be recovered through a concerted effort,

Given that the tax gap is estimated to be between £35bn and £100bn, recovering just £6bn does not look so difficult.

The task will inevitably mean recruiting significant numbers of highly skilled workers into HMRC – and so there is a cost.

HMRC will need greater internal legal resources and a big budget because some of these cases will inevitably end up in potentially expensive court cases.

Some are lost because people and businesses go under. Other amounts are due from people who do not normally submit tax returns and some of these amounts could be quite small.

It is estimated that around £5.5bn a year is lost through fraud and error around universal credit.

One of the continuing issues is that if people don’t believe there is a realistic possibility of getting caught, they will continue to evade taxes or abuse the system. That is a consequence of succeeding governments that have cut HMRC to the bone.

At the end of the day, if everything goes to plan and some serious money is invested in HMRC’s investigatory powers, a fair amount of hard cash could be recovered but the timetable is uncertain.

 

 

The Self-Assessment Tax Raid

The UK’s rising tax burden resulted in  HMRC raking in almost £1.1 trillion in taxes and other receipts during 2023-24.

A House of Commons report, published on 11 May, said “This is equivalent to around 40% of the size of the UK economy, as measured by GDP, which is the highest level since the early 1980s.”

Data published by the Office for Budget Responsibility (OBR) charts the expected future path of UK personal taxes up to and including the 2028-29 tax year, and unsurprisingly revenues are expected to continue rising, with the ratio to GDP following suit.

During this period, annual revenues for income tax self-assessment are expected to soar from £42 billion to £73 billion a 70% rise. In comparison, pay-as-you-earn (PAYE) and national insurance contributions (NICs) – are forecast to rise 41% and 8%, respectively, over the same period.

Who must file a self-assessment tax return?

  • sole traders who earn more than £1,000 (before deducting anything you can claim tax relief on)
  • business partners
  • anyone with a total taxable income of more than £150,000
  • those who have to pay capital gains tax (CGT)
  • anyone who pays the High-Income Child Benefit Charge
  • those with untaxed income, such as property rents, and income from savings, investments and dividends.

Factors increasing the tax take

The Conservatives and Labour have pledged to keep tax thresholds frozen until 2028. Fiscal drag is a stealthy way for governments to raise taxes without raising the headline rates. Over time as earnings rise, more and more people will either start paying tax or trip into higher brackets; the self-employed are no exception here.

According to the OBR, “By 2028-29, there are expected to be around 3.7 million more taxpayers overall, 2.7 million more higher-rate taxpayers, and 600,000 more additional-rate taxpayers than if all allowances and thresholds had been indexed to inflation, and the additional rate kept at £150,000.”

Fiscal drag impacts several elements of our taxes – including self-assessment.

More parents are being hit with a charge on child benefit payments (although these should be reduced in the future after the government makes the rules more favourable.

More people will lose their personal income tax allowance which reduces by £1 for every £2 you earn above £100,000.

A further factor is higher tax bills for landlords. Rents are rising and the tax breaks for property owners have thinned dramatically in recent years. For instance, they can no longer deduct mortgage costs from rental income and instead receive a flat 20% tax relief.

 

 

VAT and Private School Fees

It is widely expected that should Sir Keir Starmer win the election, the new Labour government will impose VAT at the standard rate on private school fees currently exempt from VAT.

The relevant schools and parents have to consider the potential financial impact such a change will have on them.

There are an estimated 615,000 pupils in private schools, accounting for 5.9% of the total UK school population, with around 10% of overseas students, according to the Independent Schools Council.

As all school fees and closely related supplies are exempt from VAT, private schools cannot usually recover the VAT they incur on related costs. This means that the VAT on such costs is passed on to parents in the fees charged.

Some private schools cater to specific groups of children with special needs that cannot or do not appear to be, met within the state sector. Will these be excluded from the new charges?

Some schools are set up as educational charities. Therefore the new provisions will be quite complex to formulate.

When it comes to school transport, transport of passengers in vehicles designed or adapted to carry not less than 10 passengers is zero-rated so will such services be charged separately.

Some schools, in anticipation of a challenge to their charitable status, had recently increased the level or number of bursaries and scholarships awarded to pupils unable to meet the fees, either in whole or in part. The liability of such schemes may come under closer scrutiny. The funding is generally by donation, which would be outside the scope of VAT if there is no benefit provided to the donor other than an acknowledgement.

The imposition of VAT on fees will confer on schools an entitlement to recover the previously irrecoverable VAT on related costs. But there will be some benefit from the future recovery of VAT on, for example, energy costs, telecommunications, repair and maintenance, and the cost of equipment and furnishings as well as the possibility of savings on some capital expenditure.

The implications of the imposition of VAT on private school fees, although limited to a relatively small proportion of the population, are wide and complex for those involved.

 

 

Lord Sugar’s Apprentice Goes Under

James White was chosen as the winning candidate to receive Lord Alan Sugar’s £250,000 investment in the 13th season of The Apprentice.

.

The IT recruitment agency, Right Time Recruitment, appointed a voluntary liquidator on 10 June after a compulsory strike-off was suspended on 30 May. Lord Sugar had resigned as a director several years before.

Lord Sugar said at the time of his resignation in 2020: ‘I wish James all the very best for the future and will follow his progress with interest.’

White also said in 2020: ‘I am very grateful for everything Lord Sugar has done for me. The knowledge and advice gained from Lord Sugar and his team has been invaluable.’

Hmm!

 

 

Questions?

If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.

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