So now we know the outcome of the most unpredictable election in a generation. The question for good businesses is not “How did that happen?”, but
“What happens next?”
The Tories look like they will be just one seat short of an overall majority. They are likely to form a government without partners, as the opposition is too divided to vote them out, so another 5 years as PM for David Cameron is on the cards.
The main opposition is likely to come from within the party. By this, I mean from his euro-sceptic element. It is possible that EU membership becomes the main battle ground for the next five years.
This uncertainty will be damaging to business, and my hope is we get to the promised in/out referendum as soon as possible.
What does that mean for business?
In many ways it is good news for business. The economic policy will continue. Deficit reduction will remain the central aim. In fact, the aim will be to generate a surplus.
The uncertainty over our EU membership is perhaps the biggest worry for business, especially those who export to that bloc.
The stability that this result brings probably means that interest rates will stay low for a while longer. We should see a gradual rise back to “normal” levels by 2020. This provides an opportunity to pay down debt, and strengthen the balance sheet.
As I write (midnight on Election Day), sterling has risen on the FX markets, meaning UK exports are more expensive, but imported costs are lower. The pressure for an early rise in interest rates is much reduced.
Here are a few specifics, and some suggested action.
A lower target for tax avoidance revenue
Despite my question on TV (!), (http://www.bbc.co.uk/iplayer/episode/b05t39yq/election-2015-english-regions-election-2015-a-bbc-spotlight-special) we have no idea on where the Government will raise the extra £5bn they pledged in their manifesto. We can expect most of the “vanilla” planning to remain unchallenged.
Presumably, some of the more esoteric strategies will be attacked, and there may be a tightening up of the rules on some of the CGT reliefs. Tax relief on pension contributions may also be restricted.
Therefore, the action point is to review the normal salary/dividend mix, expecting the planning to remain available.
If you are planning to sell your business over the next five years, it might be sensible to start planning now, as the only major taxes not subject to the “no increase” pledge are CGT and Corporation tax.
More encouragement to take on workers
The Tories have pledged to continue the employment allowance, so employers will be able to take up to £2,000 per annum off their Employer NIC bill. The pledge was to keep it for five years!
They want to fund up to 3 million more apprenticeships, and aim for full employment.
Small businesses should now be considering whether this is the right time to take on an apprentice. The skills shortage is likely to be the biggest brake on growth over the next five years.
The action to take here is to develop a five year plan to recruit apprentices and train them up to be your next generation of managers.
More encouragement to start up businesses
The recent pension rule change has opened up a new source of funding. Up to 10% of retirement age people are considering using their pension pot to fund a new venture.
In addition, the Government want to triple the number of start-up loans to 75,000.
Those considering a new business venture should look outside of the traditional sources for funding; there are a huge number of alternatives to the “Big Four” banks.
Cameron pledged no increase in Income tax, VAT or NIC for five years. It is difficult to see where he can increase taxes, as the Tories want to increase the IHT limit to £500,000 per person (£1m for married couples and civil partners).
The UK is in a competitive market for non-EU companies, so it is difficult to see them reversing the recent trend in reducing corporation tax rates.
This pretty much leaves only CGT, business rates, council tax and consumer taxes (alcohol, tobacco and fuel duty) as the only major areas in which taxes could be raised.
The recently announced review of business rates is expected to increase the take by £1bn, so now is the time to review that rates bill and make appeals if you think you have a case.
The other way in which tax could be raised is to restrict tax reliefs. For example, tax relief for pension contributions and gift aid could be restricted to the basic rate of tax. Gift aid relief costs around £1bn a year. Cutting gift aid relief could protect another £0.5bn of tax, without “raising” any tax.
Pension tax relief costs around £4bn a year. Another £2bn could be protected by limiting relief.
If a pension contribution is planned, it may be sensible to do it sooner rather than later, as tax relief may be restricted after the next budget or Autumn statement.
Good housekeeping in general
Of course, major changes are always a good reason to review your prices and costs. We can assist in identifying the “low cost, big impact” changes that would have the most effect, and help you to implement them if required.
Contact us, or your current adviser for help with this.