Conservative majority – initial comments on tax implications
Waking up to the news of a significant Conservative majority I thought that it would be helpful to share a few headline thoughts on likely implications from a tax perspective, albeit we will need to await a Budget before we have a better idea as to how the current landscape will change and I suspect that we may yet see a few surprises from the Chancellor given the scale of the Tory win.
The news of a Conservative majority does however appear to be good news for business and business owners. Whilst we can expect some changes, we appear to have avoided the more radical reforms to the UK tax environment that we may have seen delivered had Labour delivered a stronger performance at the polls.
Looking at the Conservative manifesto, the key tax points were:
- Corporation tax rate maintained at 19%.
- A review and reform Entrepreneur’s Relief. Whilst we will need to await the details of any changes our expectation would be a tightening of the relief, possibly to reflect an extension in the qualifying periods through which the relevant requirements for the relief must be met, and potentially also a change to the current £10m lifetime entrepreneur’s relief allowance. The reference to a ‘review’ is in my view helpful, indicating a window of opportunity before any changes are enacted. It also appears highly unlikely that some form preferential tax treatment for gains realised on genuine business disposals will not be preserved under the new Conservative government, not least given the manifesto pledge to reward entrepreneurship.
- Increase in the rate of the R&D tax credit rate to 13 per cent and review the definition of R&D so that important investments in cloud computing and data, which boost productivity and innovation, are also incentivised.
- Despite pre-manifesto references to relieving the income tax burden for the ‘squeezed middle’ through an increase in the threshold beyond which the higher income tax rate would kick in, this was excluded from the manifesto. A pledge to increase the NIC threshold to £9,500 from the current £8,632 in 2020 does however appear likely to be delivered.
- An increase in HMRC’s anti-avoidance powers appears likely, again reflecting the Conservative manifesto references to closing the ‘tax gap’ (the difference between the tax which should be paid and that actually collected), which currently stands at £35bn. In practice, this appears likely to involve both a consolidation of existing anti-avoidance rules, as well as specific new measures to target particular sectors/issues. In this regard the manifesto specifically referenced the construction sector and cross border profit shifting by multinationals.
- A proposal to review the business rates system and an ongoing commitment to supporting Help to Buy appear likely to be delivered.
The above points reflect only the key taxation pledges referenced in the manifesto. Which of these survive to be referenced within the Budget remains to be seen.
In terms of actions, my view is that businesses would be well advised to await the Budget and that for the vast majority, no immediate action will be required. We would expect to see a date for the Chancellor’s speech announced next week, albeit I would expect that to now fall into January 2020 given that the scale of the Conservative majority will now mean a short term focus on delivering Brexit.
Although ‘getting Brexit done’ will Inevitably that will give rise to ongoing uncertainty for business, not least as we progress to the negotiation of future trading arrangements, it appears almost certain that a no-deal Brexit has now been avoided. If the Conservative manifesto is to believed we also have a government with a strong majority which is ostensibly ‘pro-business’. It would however be remiss not to highlight that it is not uncommon for manifesto ‘pledges’ to be delayed, amended or to fall by the wayside!
In the medium to longer term the Conservatives’ ambitious public spending plans appear, at least in my view to be likely to result in a move towards a higher tax environment. What that looks like in practice remains to be seen, although I would be surprised if any major tax increases or reforms to key reliefs were not trailed such that there was at least a window to consider planning.
I suspect that we will hear more about Tory tax and spending plans over the next few days and will keep you updated as we hear more, although do let me know if helpful to discuss any of the above or if you have any specific concerns.