Political pledges on tax that affect contractors
As general election campaigning intensifies, we look at what the three main parties are promising on tax in their manifestos and how this affects contractor accountancy.
Labour say that under their plans, 95% of taxpayers, ie those earning less than £80,000 p.a, will be guaranteed no increase in their Income Tax contributions, and everyone will be protected from any increase in personal NIC and VAT. Only the top 5% of earners will suffer a tax hike, ie 45% for income over £80,000 and 50% for income over £123,000. This would push the marginal rate for earnings between £100,000 – £123,000 up to 67.5%.
Headline rate of Corporation Tax would be increased, although small companies would be protected from this by reviving the small companies rate whereby company profits below £300,000 would only be taxed at 20% in 2018/19, rising to 21% in 2020/21. These rates are according to an Institute for Fiscal Studies analysis. Small businesses would also be excluded from quarterly reporting under Making Tax Digital.
A number of measures would be introduced to clamp down on bogus self-employment, one of which would be the abolition of umbrella companies who are seen to limit both employment taxation and workers’ rights.
Staff numbers at HMRC would be restored with an additional £200 million of funding to enable the Revenue to tackle avoidance more effectively.
It has been 15 years since HMRC ceased to be a preferential creditor where a business or individual becomes insolvent. Labour would restore the Revenue’s preferential creditor status so as to allow less tax to be written off.
Legislation would be introduced to ensure that those involved in tax avoidance are unable to secure public contracts from central and local government, and public bodies.
A specialised Tax Enforcement Unit would be created to double the number of HMRC staff scrutinising the tax affairs of High Net Worth individuals and companies and increase the number of prosecutions.
The Tories are committed to delivering on their promise to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by 2020. Also by 2020, the rate of Corporation Tax will fall to 17%.
VAT will not be increased and will therefore remain at 20%.
Ongoing simplification of the tax system is promised but with no detail as to how this will be achieved.
The rights of self-employed workers in the ‘gig’ economy would be properly protected but the Tories would wait until the publication of the Taylor report before deciding on their course of action.
Basic, higher and additional rates of Income Tax would all be immediately increased by 1p in an attempt to raise an additional £6 billion of revenue to be spent on the NHS and social care services. This tax rise would eventually be replaced by potential reforms on NIC – substituting a tax with a tax!
In the long term the employee NIC threshold would be aligned with the Income Tax threshold.
A number of Conservative measures designed to reduce the tax burden would be reversed, namely:
- Corporation Tax reduction from 20% to 17%
- Capital Gains Tax Entrepreneurs’ Relief
- Marriage Allowance
- Raising of Inheritance Tax threshold
- Dividend tax relief
In common with the Tories, employment rights would be modernised to make them fit for the age of the ‘gig’ economy but these would built on the Taylor report.
Like Labour, the Lib Dems would invest in staff to enable HMRC to combat tax evasion and avoidance.
The Corporation Tax system would be reformed to develop a system that benefits the smallest companies while ensuring the biggest multinationals cannot avoid paying their fair share by moving away from a profits-based tax to one that takes account of a wider range of economic activity indicators, such as sales/turnover.
It’s unlikely that taxation alone will influence your vote on 8th June but some of these proposals may help shape your decision.
Corporation Tax Rate Changes
Rishi Sunak has proposed a number of changes to the way that Corporation Tax will be calculated and applied. Learn more.
Autumn Statement – Headline Changes
Autumn Statement – Headline Changes
Extracted from the ACCA Guide to the Autumn Statement 2022
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