We are officially apolitical here at Optimal Compliance. As such, we would never publicly endorse any party or leader. Equally, we strive to dole out criticisms as impartially as appropriate. Although, admittedly (and, in many ways, depressingly) pro-business often, in practice, translates to pro-Tory.
Anyway, despite our well documented aversion to all things political, we thought it might be helpful to present a rundown of each party’s respective plans regarding business and tax, ahead of tomorrow’s general election.
Admittedly, there are other important factors to take into consideration when deciding who to vote for in a general election, such as knowledge of Gregg’s prices (a sausage roll does NOT cost £1.90!), treatment of squirrels (WARNING: Fake News!), and proclivity for heading footballs (click for instant nostalgia…).
Jokes aside, we know that there are other issues besides business/taxation policies that are important to people, including business owners.
However, we suspect that each party’s planned treatment of businesses will be of profound importance to clients and would-be clients of ours, whether or not it ends up being the deciding factor. We’ve organised the below into bullet points for easy reading and have (mostly) limited each respective summary to points pertaining to business and tax matters.
Just to be clear, for the purposes of this little article, we’ve decided to take each party on their word as far as what’s laid out in their respective manifestos.
Obviously, there’s always the niggling possibility that they won’t deliver on their promises…
Generally speaking, the Conservatives tend to be the most business-friendly party. Having said that, the Tories have indicated that they intend to increase spending, if successful tomorrow. As such, they have delayed their previous plan to continue reducing Corporation Tax from 19 per cent down to 17 per cent. They also intend to deliver a fairly hard line Brexit which of course could have unforeseen repercussions for UK business.
Here’s a list of some of the things business owners can expect from a reaffirmed Boris-led Tory government:
- Increase the R&D tax credits rate: They plan to increase the R&D rate to 13 per cent and review the definition of R&D. Boris Johnson told the CBI he is planning to review the scope of R&D tax credits, to establish whether investments including cloud computing and data should benefit. He said he was proposing to increase the R&D tax credit rate from 12 per cent to 13 per cent. The RDEC scheme is for larger businesses. More on this as it develops! For more info on R&D for SMEs, click here
- “Get Brexit Done Unleash Britain’s Potential”: Can’t provide much commentary on the implications of this unfortunately – Brexit remains in the realm of the unknown. Most of the small businesses we deal with don’t have too much to do with Europe but obviously if the pound slides (more) then that’s bad for everybody. Conversely, it’s possible that Brexit could mean fewer regulations for British SMEs. We’ll have to wait and see what happens… According to the manifesto, Brexit will happen in January.
- “Thriving high streets”: The Tories say they will carry out a “fundamental review” of the business rates system in the hope of bringing back “thriving high streets”. They want to “further reduce business rates for retail businesses” as well as extend the discount to “grassroots music venues, small cinemas and pubs.”
- Corporation Tax: As previously mentioned, previous plans to further reduce CT to 17% in April 2020 have vanished from the Conservative manifesto. The current rate of 19% will be maintained, which will result in revenues worth £3 billion in 2020-2021. This will be disappointing for some. Other revenue-making measures include a health immigration surcharge, worth £578m in 2023-2024, and a tax aimed at tackling plastic pollution, worth £310m.
- Clamping down on late payments: The Tories say they will “support start-ups and small businesses via government procurement, and commit to paying them on time.” They also want to “clamp down on late payment more broadly and strengthen the powers of the Small Business Commissioner to support small businesses that are exploited by their larger partners.” This would certainly benefit SME cash flow.
- Loans: The Conservatives want to “expand startup loans” which has historically been especially beneficial to women and BAME (Black, Asian, and Minority Ethnic) entrepreneurs.
- Personal Tax: Boris Johnson has been forced to climb down on the income tax cuts he pledged during his leadership campaign, but the Conservatives have promised voters a “triple tax lock”, vowing not to increase income tax, national insurance or VAT rates for five years. The only proposed giveaway is to raise the national insurance threshold from the current £8,632 to £9,500 by 2020-21. The Institute for Fiscal Studies says this would hand a modest £150 tax break to the highest income 30 per cent of working households, but only about £30 to the poorest 10 per cent.
- Increasing the Employment Allowance for small businesses: The Tories plan to up the employment allowance from £3,000 to £4,000, resulting in a cut in National Insurance of £1,000 for half a million business.
- Raising the National Insurance threshold: They want to raise the NI threshold to £9,500 next year – they claim this is a tax cut for 31 million workers. The Tories want to ensure that “the first £12,500 you earn is completely free of tax”. No complaints there.
- Stronger on tax evasion: By creating a “beefed-up” Anti-Tax Evasion unit at HMRC.
Labour are famously “for the many, not the few” which of course translates to higher rates of Corporation Tax (CT) and indeed personal income tax etc., especially for high-earners. Labour has set its sights specifically on high-earners and wants to lower the 45% income tax band down from its current £150,000 threshold to those earning more than £80,000 a year and introduce a new 50% rate for those earning more than £125,000.
Additionally, Labour plans to hike CT up from 19% to 21% in April 2020, and up to 26% by 2023. Not great because if this happens it will no-doubt be SMEs who bear the brunt because, unlike larger corporations, they can’t generally afford to organise their affairs in a manner such that CT doesn’t hit them quite so hard.
Here’s a list of some of the things business owners can expect from a Corbyn-led Labour government:
- Minimum Wage: Labour wants to “rapidly introduce a Real Living Wage” which would mean raising the minimum wage to £10 an hour for everyone over 16 which would have a massive impact on SMEs and larger corporations. This might not be great news for some SMEs who would be forced to raise wages and, if that’s not possible, lay people off. See below for recent hourly rates:
- Apprenticeships: Labour says it “will make it easier for employers to spend the [Apprenticeship] Levy by allowing it to be used for a wider range of accredited training”. This could be helpful for SMEs who wish to train younger people for an initially reduced rate of pay. They’re also pledging to help small businesses by increasing the amount that can be transferred to non-levy-paying employers to 50 per cent, and introducing an online matching service to help levy-paying businesses find smaller businesses to transfer their funds to.
- Tax: Labour says it “will make Britain’s public services the best and most extensive in the world. We’ll ask those who earn more than £80,000 a year to pay a little more income tax, while freezing National Insurance and income tax rates for everyone else.
“We will end the unfairness that sees income from wealth taxed at lower rates than income from work.
“VAT is a regressive tax that hits the poorest hardest and we guarantee no increases in VAT.
“We will launch the biggest ever crackdown on tax avoidance and evasion and reform the inefficient system of tax reliefs.”
Self-employed: Tailored support and protections for the self-employed feature on the Labour agenda for the self-employed, including:
- collective income protection insurance schemes
- annual income assessments for those on Universal Credit
- better access to mortgages and pension schemes – this will be helpful for LLP members!
- Zero-hours contracts: Zero-hour contracts would be banned and the law tightened up so that people working regular hours for more than 12 weeks have a right to a regular contract. This could be annoying for small business owners. We think it should be up to individuals what kind of contracts they want to engage in. Government intervention tends to cause more problems than it solves.
- Brexit: Unlike the Lib Dems, that want to stop Brexit outright, Labour says that that “within three months of coming to power, a Labour government will secure a sensible deal. And within six months, we will put that deal to a public vote alongside the option to remain. A Labour government will implement whatever the people decide.” Whether this is a good thing or a bad thing depends entirely on one’s opinions on Brexit. Another referendum would undoubtedly cause further disruption and may well cause the pound to slide.
The Liberal Democrats have positioned themselves as the party to stop Brexit which will likely chime with disgruntled Remainers, of which there are many; additionally, left-leaning parties tend to impose higher rates of business and personal tax. However, the Lib Dems have made it clear that they want to try and improve business rates, introduce a new ‘startup allowance’, and also to reinvigorate the high street by “by scrapping the rule which allows developers to convert offices and shops into residential properties without planning permission.”
Here’s a list of some of the things business owners can expect from a Jo Swinson-led Liberal Democrat government:
- Stop Brexit: The Lib Dems will block Brexit, if elected. Many SMEs would no-doubt favour this as Brexit has and continues to cause widespread disruption and uncertainty. In fact, it’s likely that many single-issue voters will vote for the Lib Dems based on just this pledge.
- Tax: Return the Corporation Tax rate from 19% to 20%. Bad for our clients. Also (and this is pretty major!) the Lib Dems want to abolish Capital Gains allowance. It is currently £12,000. This, again, would be bad news for people wishing to implement a partnership model. The Lib Dems would not be great for businesses, especially SMEs.
Business: The Liberal Democrats will replace business rates in England “with a Commercial Landowner Levy based solely on the land value of commercial sites rather than their entire capital value, thereby stimulating investment, and shifting the burden of taxation from tenants to landowners.”
The party want to create “a new ‘start-up allowance’ to help those starting a new business with their living costs in the crucial first weeks of their business.”
They want to “expand the activities of the British Business Bank, enabling it to perform a more central role in the economy by tackling the shortage of equity capital for growing firms and providing long-term capital for medium-sized businesses.”
They claim they will continue to “support investment in new UK digital start-ups by reforming the British Business Bank’s support for venture capital funds to enable it to help funds ‘crowd in’ new backers rather than acting as a funder of last resort.”
High streets: They want to protect our high streets and town centres “by scrapping the rule which allows developers to convert offices and shops into residential properties without planning permission.” They will also expand the Future High Streets Fund.
- Loan Charge: The Lib Dems have pledged to end retrospective taxes such as the Disguised Remuneration Loan Charge. This is the tax widely covered by the press that’s been the cause of six suicides that we know of. Some of our clients have been affected by this tax and it’s a particularly nasty one. They’ve also pledged to “review recent proposals to change the IR35 rules”. We’ve written on both extensively. See below:
- Employment rules: Similar to Labour (though more vague), the Lib Dems say they will “expand the rights and benefits available to those in insecure forms of employment, such as offering parental leave and pay to the self-employed.” They also want to:
establish an independent review to consult on how to set a genuine Living Wage across all sectors
change the law so that flexible working is open to all from day one in the job
establish a new ‘dependent contractor’ employment status in between employment and self-employment, with entitlements to basic rights such as minimum earnings levels, sick pay and holiday entitlement
review the tax and National Insurance status of employees, dependent contractors and freelancers to ensure fair and comparable treatment
shift the burden of proof in employment tribunals regarding employment status from individual to employer
- More regulations is generally bad for SMEs so the above probably wouldn’t be a good thing for small businesses.
For more information on how the general election may affect your business or for general business advice, please don’t hesitate to get in touch!