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Article:

Election 2019 – policies on business taxes

26 November 2019

More on Election 2019:
Election 2019 – policies affecting employers
Election 2019 – policies affecting individuals
 

Although businesses cannot vote, many policies on business taxation and other issues that will have a large impact on businesses have already been announced by the main political parties. This article summarises and contrasts the main proposals.

Corporation tax

In Finance Act 2018, the rate for corporation tax for 2020/21 was set at 17%. As this rate has been set in legislation, it is the rate that companies must use for their deferred tax calculations for their annual accounts. However, all the main parties are now pledging to set the rate for 2020/21 and later years at 19% or higher. Therefore, the one certainty is that, whoever wins the election, businesses will need to revisit their deferred tax calculations.  

The Conservatives have said that the corporation tax cut to 17% will be delayed; they now intend to keep the rate at 19% for at least 2020/21. The Liberal Democrats have pledged to restore the main rate to 20% and keep it there for the foreseeable future.

Labour would reintroduce a small profits rate (for businesses with an annual turnover under £300,000) set at 19% for 2020/21 but rising to 20% in April 2021 and 21% in April 2022. It would set the main rate of corporation tax at 21% for 2020/21 and raise it to 24% from April 2021 and then 26% from April 2022. Labour also plans to introduce a windfall tax on oil companies with the revenue raised being used towards the £250bn capital investments it intends to make in tackling climate change.

International tax rules

The Conservative party has confirmed its commitment to introduce a Digital Services Tax (DST) currently planned to take effect from April 2020. The Liberal Democrats say that they will improve on the Government’s DST proposals and “build on the OECD’s proposals to require multinationals to pay a level of tax which is more closely related to their sales in every country in which they operate”.

Labour intends to achieve rather wider reform of international taxes by treating all corporate groups under common ownership as unitary enterprises “so that profits are declared where economic activity occurs and where value is created”. It is expected that this would mean profits of non-UK multinationals being allocated to a UK enterprise on the basis of sales, assets and labour in the UK, but UK-based multinationals would continue to be taxed under the existing rules.

Brexit

The Conservative party is promising to ‘get Brexit done’ which is expected to see Parliament pass the withdrawal deal already negotiated with the EU. This would mean that the UK would officially leave the EU during 2020 with a transitional period operating until 1 January 2021 (ie most operational laws and cross-border arrangements would remain in place until that date).

Labour plans to renegotiate a withdrawal deal that would align the UK much closer to the existing single market and then carry out another referendum to approve the deal or reject Brexit altogether. If a Liberal Democrat ruling majority forms the next government, it would revoke Article 50 and cancel Brexit.

Tax reliefs

The Labour party has pledged that a Labour Treasury would review all current corporate tax reliefs (ie the “hundreds of corporate tax expenditures” that are tax deductible) and has set a target of reducing the annual cost of these tax reliefs by £4.3bn.

The Liberal Democrats are rather less specific, but have pledged to ‘simplify’ business tax rules to simplify tax administration for businesses; whether this would increase or reduce business tax reliefs overall is not clear.

The Conservatives already plan to introduce restrictions to payable R&D tax credits from April 2020 to reduce the scope for tax avoidance by SMEs. However, they have pledged to increase the value of the RDEC for larger companies from 12% to 13% and review the project qualifying criteria to establish if it can be widened to include R&D in cloud computing and data. It would also increase relief available under the new structures and buildings allowance to 3% a year.

A new Labour government would take a different approach and seek to phase out both the existing R&D schemes and the UK patent box relief. It would replace these with a system of direct funding (grants), with investment provided through a National Transformation Fund and the independent National Investment Bank’s innovation arm.

Business rates

Business rates have long been a sensitive topic with successive governments delivering only minor changes and not the fundamental reform that many business would like to see. So it is perhaps no surprise that the main parties are all promising to review and/or replace the current system.

The Conservatives are pledging to carry out a fundamental review of the system. No desired outcome (other than to reduce the burden on businesses) or timescale is given for this review. However, they do propose an interim step of further reducing business rates for retail businesses, as well as extending the current discount arrangements to “grassroots music venues, small cinemas and pubs”.

The Liberal Democrats intend to replace Business Rates (in England) with a ‘Commercial Landowner Levy’ based solely on the land value of commercial sites, not their full capital value. They argue that this would both shift the burden of taxation from tenants to landowners and stimulate investment.

To help businesses cope with the ‘real problems’ caused by the current system, the Labour party intends to review the option of a ‘land value tax’ charged on commercial landlords as an alternative to business rates paid by tenants.

Small businesses

The Liberal Democrats want to support start-up businesses by giving them a new ‘start-up allowance’ to help with their living costs in the crucial first weeks of their business. They would also prioritise small and medium-sized businesses in the rollout of hyper-fast broadband and provide mentoring support to help fast-growing businesses scale up rapidly.

All three main parties plan action to speed up payments to small businesses under new prompt payment rules including rules to protect small businesses being exploited by their larger customers. For example, Labour would ban late payers from benefiting from public procurement.