Introduction
The campaigning is over and we have a new Government, with a significant majority. The result is being described as “historic” and “an earthquake”.
Good businesses have always looked ahead, so this brief article is designed to help us all think about what happens next year and beyond.
Assuming the promises are honoured (I make no comment on that!), here’s what we can expect over the next five years, and the action business owners can take now.
What is in store?
I am focusing on purely tax and business matters.
Taxation of income and expenditure
The Tories have promised to keep income tax and VAT at current rates. The planned cut in corporation tax will be cancelled, so the rate of 19% will remain. There will be a cut in NIC worth £100 next year, and the intention is to increase the cut to £500 by the end of the Parliament. That would mean an increase in the NIC threshold to £9,500 from April 2020 and going to £12,500 eventually.
This would set the foundation for merging income tax and NIC, but there’s no firm indication that this will be considered.
In a boost to small business, the limit for the employment allowance will increase from £3,000 to £4,000. This is a real cash saving of £1,000 a year.
The Digital Services Tax, while not affecting most businesses directly, could lead to increased charges from the “big six” online marketplace providers.
There is a planned increase to the rate of R&D tax relief, which makes this source of cash/funding an even more important consideration for particularly smaller companies.
The plans are broadly tax neutral, with a slight increase in the tax take.
Taxation of capital and wealth
The “triple lock” pledge on income tax, NIC and VAT lead many to think that capital taxes will be raised. There are changes to CGT already coming into place from 5 April 2020, which will produce a one-off boost to the Exchequer of between £5bn and £8bn in 2020/21.
The restrictions include a cut in the deemed period of PPR to nine months, and the practical abolition of lettings relief.
There’s no mention of IHT in the manifesto, but at the last Tory party conference, there was a declaration of intent to abolish Inheritance Tax. Whether this makes its way into the first budget remains to be seen.
The Tories announced an intention to reduce the maximum SDLT rate from 15% to 7% at their conference in the autumn of 2019. An increase in the threshold to £500,000 would remove a majority of transactions out of the tax net. Again, there’s nothing in the manifesto to tell us if this will be implemented.
Business matters
Further business rates reforms are promised, giving targeted reductions of £320m.
More money is promised to improve the energy efficiency of homes, road repairs and re-opening railways as well as improving flood defences, provides opportunities to businesses in construction, energy efficiency and engineering. There’ll be more funding for childcare, which creates opportunities for expansion of existing providers, and bringing in new providers to the market.
Action required
A review of the benefits of incorporating a sole trade or partnership should be revisited.
Companies which are making small profits should consider disincorporation. (Taking into account the other benefits from limited liability and their individual succession plans).
Homeowners should weigh up whether to get their property sold before 5 April 2020, or to wait until the possible cut in SDLT which may help to boost the sale price. Owners with a fleet of ten or more letting properties should take tax advice as there may be a way to secure both advantages.
Businesses which innovate or find ways around technical and other challenges should consider whether incorporation will secure an increasingly valuable R&D tax credit.
Be ready for a budget in January or early February and look out for a review of the detailed proposals. We’ll be covering live so watch out for (now traditional) coverage!
Steven Carey
13 December 2019
