Insights into the new Government’s prospective tax policies after the Conservative Party secures large majority in General Election 2019.
The much-anticipated General Election has seen the Conservative Party win a clear majority in the House of Commons and this means that we have a somewhat clearer vision of the shape that the UK’s tax policy landscape will take during the next Parliament. Statements made in the pre-election run-up as well as in the Conservative Party’s 2019 Manifesto shed light onto what we can expect from the new Government: no immediate reduction of corporation tax; introduction of the digital services tax (DST); increases in certain allowances and credits; review of business rates; amendments to anti-avoidance laws; as well as no increases to income tax, national insurance or VAT.
As stated prior to the election, the Government plans to present a Budget in February 2020. The path to the UK formally leaving the EU now also looks more certain than ever. Boris Johnson will be keen to deliver on his “Get Brexit Done” campaign message and will be looking to leave the EU as soon as possible via the existing Withdrawal Agreement which is expected to be voted on again before Christmas.
On corporation tax, legislation was enacted in section 46 FA 2016 to reduce the headline rate of 19 percent to 17 percent from 1 April 2020. However, the Prime Minister announced in a speech to the Confederation of British Industry (CBI) annual conference on 18 November that the planned corporation tax reduction from 19 percent to 17 percent would be put ‘on hold’ to help fund ‘national priorities’ including the NHS. Accordingly, it is expected that legislation will be enacted in the coming months to maintain the rate at 19 percent for financial year 2020.
In an attempt to offset some of the damage for companies from cancelling the corporation tax rate reduction to 17 percent the Conservative Party 2019 Manifesto announced a number of measures which are expected to result in tax cuts for companies: (i) reducing business rates following a major review; (ii) increasing the structures and building allowance from two percent to three percent; (iii) increasing the research and development (R&D) tax credit rate from 12 percent to 13 percent as well as conducting a review of the definition of R&D so that important investments in cloud computing and data which boost productivity and innovation, are also incentivised.
The Conservative Party also re-committed to introducing a DST in its 2019 Manifesto. Boris Johnson spoke in favour of the plan during the leadership campaign and draft legislation was published in July 2019. It is expected that next year’s Finance Bill will legislate for the DST so that it applies from April 2020 although there have been interesting developments internationally on this recently with the US upping the ante in their war on unilateral DSTs.
For individuals, Boris Johnson guaranteed to not increase the rates of income tax and national insurance contributions during the next Parliament. The Manifesto also confirmed that the National Insurance Class 1 Primary Threshold will be raised from its current £8,632 to £9,500 next year.
Of interest to employers the Chancellor has indicated that he will review the planned extension of IR35 (off-payroll working) to the private sector and we may also see consultations on pensions protection and the apprenticeship levy.
On the basis of statements made in the Conservative Party’s 2019 Manifesto, other tax policies that we may expect going forward include:
To hear more about the tax implications arising from the General Election result please listen to a recording of our webinar “Election 2019: Tax implications”.
With Parliament returning after the General Election campaign, the Government reintroduced the Withdrawal Agreement Bill on Friday 20 December. In order to leave the EU by 31 January 2020, the European Parliament needs to ratify the deal before that date. If ratified by 31 January, the UK would enter the transition or implementation period which will maintain the UK's current relationship with the EU until 31 December 2020 whilst negotiations regarding the UK’s future trading arrangements with the EU take place. Given the Prime Minister has ruled out any extension to the transition period beyond the end of next year the timetable for concluding a future trade deal is very ambitious. If the UK were to leave with no deal at the end of the transition period it would then trade with the EU (and with other countries with whom the UK has not yet concluded trade deals) based on standard World Trade Organisation (WTO) terms from 1 January 2021.
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