Last week, the Conservative Party, led by Boris Johnson, won the General Election by an unprecedented landslide. But what does the victory mean for you, personally and as a business owner, from a financial perspective? In this blog post, Salford Accountants, MCC, break down some of the key policies contained in the Conservative’s surprisingly brief manifesto and discuss what they mean for you.
Taxes for Individuals
Over the next few years, individuals should see very little change in the taxes they pay, thanks to the introduction of the so-called ‘Triple Tax Lock’, which will freeze the current Income Tax, VAT and NIC rates. However, some experts have suggested that, given the revenue requirements of The Treasury, some changes will be introduced indirectly, which would impact the highest earners.
However, the Institute for Fiscal Studies (IFS) has been critical of the proposed freezing of the income tax rate, calling the ‘Triple Tax Lock’ “a part of a fundamentally damaging narrative – that we can have the public services we want with more money for health and pensions and schools – without paying for them. We can’t.”
One of the biggest changes which will come into effect under the new Government is the increase in the National Insurance primary threshold, which during the next financial year will be increased by £868 to £9500, providing a tax cut of £104 for workers. There are plans for further increases down the line, too, which would see the threshold rise to £12,500, bringing it in line with the personal allowance. If implemented, this would lead to a £464 tax cut.
One noticeable absence from the manifesto was a promise to increase the basic rate income tax band to £80,000, which was a key part of Boris Johnson’s original leadership bid. It is thought that doing so would have cost The Treasury too much and that it will now not be introduced.
Taxes for Businesses
The tax changes for businesses are also minimal, though there will be some which affect SMEs. For example, the Conservatives have proposed an increase to the Employment Allowance, which allows business owners to reduce their (secondary) Class 1 National Insurance each time they run payroll up to a maximum of £3000 each tax year. What form this change will take is, for the moment, unclear.
A further boost for SMEs, especially those in the research field, is a promise to increase R&D tax credit to 13%. There may even be a rewording of the definition of ‘R&D’, so that more company spending could fall under its remit. Furthermore, there could also be an expansion of the scheme providing start-up loans.
However, it seems that Entrepreneurs’ Relief, which reduces capital gains tax payable when selling all or part of a small business, may soon be abolished, or at the very least its terms altered. The relief is highly regarded by business owners and is part of the success of the entrepreneurial system in the UK, so concerns have been raised that the changes could prove harmful to the economy.
Finally, plans to decrease the corporation tax rate seem to have been scrapped. They would have led to a reduction from the current rate of 19% to 17%. By performing this U-turn, The Treasury will have £6 billion more in revenue than if it has continued with the rate reduction.
Until a new Budget has been announced, little more can be said with any real certainty. However, if you have any questions about what the Conservative victory could mean for you, get in touch with the team at Salford accountants, MCC. We offer a wide range of services and our dedicated team are always on hand to provide advice and support.