Tax implications of the UK General Election 2024

By Andrew Neuman, Tax Director at Carpenter Box.

The 2024 UK General Election has brought significant attention to tax policies, with the Labour Party’s manifesto outlining various changes that will impact businesses, employers and individuals. Here’s a detailed look at what these tax implications might entail.

Businesses

• Corporation tax: Labour intends to cap the corporation tax rate at 25% for the duration of the parliament. However, they may reduce the rate to stay competitive internationally. Businesses might appreciate this cap as it promises no further increases, although some feel that the tax, which was raised from 19% to 25% in April 2023, is already high and makes the UK a less attractive prospect for outside investors.

• Capital expenditure incentives: The manifesto pledges to maintain full expensing of capital expenditures on new plant and machinery, as well as the Annual Investment Allowance (AIA), which offers full relief on up to £1 million of expenditure annually. This is beneficial for capital-intensive businesses but less so for capital-light enterprises. There’s no mention of extending these benefits to the leasing industry, which could be a point of contention.

• Business rates and other taxes: A significant change could come from Labour’s commitment to reform the business rates system, aiming to make it fairer and to level the playing field between brick-and-mortar and online retailers. While maintaining the overall revenue, this could lead to a shift in how business rates are assessed and collected. Additionally, the manifesto includes extending and modifying the windfall tax on large oil and gas companies, but this would likely be passed on to the consumer increasing household bills.

Employers

• Taxes on employees: Labour has vowed to keep National Insurance contributions, income tax, and VAT rates steady, there have already been suggestions to increase the National Insurance contributions for those earning over £50,270 by 4% representing a significant increase to the “working man”. Additionally, no promises were made regarding capital gains tax (CGT). A potential increase in CGT could affect employees involved in share incentive plans.

• Employment rights: Labour’s focus on improving workers’ conditions includes banning zero-hour contracts and introducing employee rights from the first day of employment, covering parental leave, sick pay, and protection from unfair dismissal. They also plan to create a Single Enforcement Body to ensure compliance with these rights, likely increasing regulatory scrutiny on employers regarding issues such as the National Minimum Wage and holiday pay. Business leaders have voiced concerns over these proposals saying it would discourage businesses from employing people.

• Minimum wage adjustments: The manifesto proposes making the minimum wage a living wage by adjusting it according to the cost of living and removing age bands, ensuring all adults receive the same minimum wage at a rate of £11.44 for those anyone aged 21 and over (from £8.60). This could lead to significant pay increases for young workers but also increase costs for employers.

• Reforming the Apprenticeship Levy: Labour aims to replace the Apprenticeship Levy with a Growth and Skills Levy. The current levy charges employers 0.5% of their pay bill if it exceeds £3 million. Details of the new levy are not yet available, but it indicates a shift towards a more flexible approach to funding training and skills development.

Individuals

• Non-domiciled tax status: One of Labour’s headline policies is the abolition of the special tax regime for non-domiciled individuals. This change aims to tax long-term UK residents equally, potentially dissuading some wealthy individuals from residing in the UK if the new system is too stringent. The use of offshore trusts to avoid UK inheritance tax on non-UK assets will also be abolished, and an additional 1% will be added to the stamp duty land tax rate for residential property purchases by non-UK residents. From conversations with our clients, many of these individuals are already planning to leave the UK taking their wealth with them. Many Private Client practices are looking to lobby the Government over these rules as the estimated revenue is going to be less than predicted and rather than abolishing the old rules, simple amendments to the current regime could raise more tax revenue.

• Capital taxes: Despite media speculation, Labour has not announced any drastic changes to capital gains tax (CGT) or inheritance tax (IHT) besides altering the tax treatment of ‘carried interest’ to align it with income tax. Although significant changes to CGT were not confirmed, the potential for reform remains as the new government may revisit previous reviews and reports on these taxes.

• VAT on private school fees: Labour has announced that VAT will apply to private school fees from 1 January 2025 with certain provisions to catch prepayments from 29 July 2024, making it more expensive to attend private schools. Transitioning private schools to making taxable supplies would allow them to recover their input VAT in full, which would come at a cost to the Treasury. Indeed, analysis prepared by HMRC has shown it could bring in less than half the amount previously estimated.

These proposed tax policies may have attracted attention during Labour’s campaign trail but now they are in power will they still commit to them, now they have had a chance to think them through? Or will they be amended to fill their commitment to closing the tax gap? Either way, businesses, employers, and individuals alike will need to prepare for these changes and consider their potential impacts. As always, staying informed and consulting with tax professionals will be key to navigating the new landscape.

If you are interested in finding out more about any of these tax implications, please get in touch with us on 01293 227670 or visit www.carpenterbox.com