The Labour, Conservative and Liberal Democrat parties have announced their manifestos for the General Election on the 12 December 2019. There are clear differences between them on tax. While the Conservatives have proposed very modest tax changes, Labour and the Liberal Democrats have proposed significant tax increases.
We have summarised the main corporate tax proposals for you below.
Labour as expected by many, have the most radical proposals within their manifesto.
They propose reversing previous corporation tax rate cuts and reintroducing a lower rate for small companies so that there is a return to two rates.
How they are categorising ‘small’ would appear to be measured by turnover rather than profits and would mean less than £300,000 turnover. The rates will rise to 26% (small profits - 21%) by 2022-23, this is achieved in steps with the main rate initially increasing to 21% for 2020-21.
Labour propose to review the option of a land value tax on commercial landlords as an alternative and to develop a retail sector industrial strategy.
Large companies will have to place 10% of shares into a newly created fund, an Inclusive Ownership Fund (IOF), with dividends of up to £500 each paid to all employees and then the balance paid to a new Climate Apprenticeship Fund. Some see this as a new business tax, akin to a further increase in the effective rate of corporation tax.
Labour propose scrapping the current arm’s length arrangement requirement for transactions with connected parties (or transfer pricing, which is widely adopted globally) to be replaced by a system that declares profits where economic activity occurs and where value is created using measures of sales, assets and labour.
Whilst outside the Manifesto, Funding Real Change makes clear Labour intend to phase out R&D tax relief for large companies and the Patent Box. They will retain R&D relief for SMEs for now. They favour a direct funding approach instead. Read our insight on the party proposals for R&D and the Patent Box to find out more.
Stamp duty reserve tax is proposed to be extended to other financial transactions, with some exemptions for near cash transactions and with a daily limit above which it won’t apply. Whilst helpful for individuals, exempting most transactions, this is a potential added complication for businesses.
An £11 billion one-off windfall tax is proposed on oil and gas companies.
Labour’s manifesto commits them to a review of corporate tax reliefs with a target reduction of £4.3 billion
Labour promise to launch the ‘biggest ever’ crackdown on tax evasion, with increased transparency and more support for HMRC.
The Conservatives are lighter on detail but pledging to simplify the tax system and make it fairer. They suggest that they aim to redesign the tax system so that it boosts growth, wages and investment.
The proposed reduction in corporate tax rates to 17% has been dropped and it remains at 19% for all companies regardless of size.
A cut in the burden of tax on business is promised, with a fundamental review of the system. The initial cut in rates will be for retail businesses, as well as extending the discount to grassroots music venues, small cinemas and pubs to tackle the loss of high street and community facilities.
Structures and Buildings Allowance, a form of capital allowance on non-residential construction costs which was introduced on 29 October 2018, is proposed to increase from 2% to 3% per year from 2020-21.
Proposed increase in the employment allowance (the reduction to an employer’s class 1 secondary National Insurance Contribution bill) from £3,000 to £4,000 per year – said to be a cut for half a million small firms.
Further support is promised with an increase in the rate of tax credit for larger companies from 12% to 13% of their qualifying expenditure. They also propose a specific review of the qualification for R&D for cloud computing and data contributing to improvements in productivity and innovation. Read our insight on the party proposals for R&D and the Patent Box to find out more.
Introducing Stamp Duty Land Tax surcharge of 3% for non-residents buying UK residential property.
Implementation of the Digital Services Tax – a new 2% tax on the revenues of search engines, social media platforms and online market places which derive value from UK users.
A new anti-tax avoidance and evasion law is proposed with a specialist Anti-Tax Evasion unit in HMRC and consolidation of existing anti-evasion and avoidance measures and powers.
Further measures proposed to avoid profit-shifting by multinational companies to avoid paying taxes.
The Liberal Democrats tax policies fall between the radical changes suggested by the Labour Party and sparser number of tax policies within the Conservative manifesto, as anticipated from the sitting government.
Increase corporation tax rate to 20% from 19% at present and keep the rate stable with a predictable future path.
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 Liberal Democrats propose to graduate stamp duty land tax by the energy rating of the property.
The Liberal Democrats propose an expansion to the scope of R&D tax credit to be allowed on more items of expenditure, they also have a focus on cloud computing by allowing companies to claim R&D tax credits against the cost of data sets and cloud computing. Read our insight on the party proposals for R&D and the Patent Box to find out more.
They want to reduce tax evasion and avoidance by increasing funding for HMRC, along with:
They have also claimed they will end retrospective tax changes like the loan charge and review recent proposals to change the IR35 rules.
Whatever the result of the election, all companies will
face higher corporate tax costs than they had anticipated over the next few
years, impacting on spending plans.
Innovative companies may face either a loss or an
increase in the valuable support available under the R&D tax credit scheme,
depending who is in power.
Multi-nationals in particular could face some sweeping changes
to how and where their results are taxed and whilst this is a headline grabber,
many businesses grow and expand their operations this way for commercial rather
than tax-driven reasons.
Our advice would be to continue to review your structures
and exposure to additional tax charges and factor this into your business
Furthermore, understanding how the new ways of addressing
multinational trade will impact your business operations will continue to be
Read our insights on the potential policy changes in property
tax and R&D
tax credits for more information on how the General
Election impact your business.