With the launch of the Outhwaite Associates Ltd website coinciding with the general election, we thought it would be an interesting time to see what the main parties have to say about a subject dear to our hearts – tax!!
Taxes are the main way the government raises money and therefore directly increasing them, or reducing existing tax reliefs, is one way of bolstering government finances.
Income tax, national insurance contributions and value added tax (VAT) provide the bulk of the government's revenue, meaning changes to any of these are likely to have the biggest impact and are therefore most likely to be targeted, £622.9 billion is expected to be raised from taxes between 2015 and 2016. Widespread criticism of tax avoidance by multi-national firms and wealthy individuals means these issues will also be a focus. “Google Tax” was the buzzword after George Osbourne’s Budget speech last month.
The Conservative party
Key pledges regarding tax: -
- Legislate to keep people working 30 hours on minimum wage out of tax
- Raise personal allowance to £12.5k and 40% tax threshold to £50k
- Increase inheritance tax threshold for married couples and civil partners to £1m
- No rise in VAT or National Insurance contributions.
The Labour party
Key Priorities regarding tax: -
- Extra £2.5bn for NHS, largely paid for by a mansion tax on properties valued at over £2m
- No rise in VAT, NI or basic and higher rates of income tax
- Re-introduce the 50% top rate of income tax for people earning over £150k, and the 10% starting rate
- Abolish non-dom status
Liberal Democrat party:
Key Priorities regarding tax: -
- Increase tax-free allowance to £12,500
- Raise the income tax threshold to £12,500
- Raise up to £1.5bn from a tax on homes worth over £2m
- Bring in £14bn from tax rises on corporations and the wealthy, and reduced tax avoidance
- Increase charges to “non-doms”, raising £130m
Key Priorities regarding tax:
- No tax on the minimum wage
- Increase personal allowance to £13,500
- Scrap inheritance tax
- Introduce new 30p tax band for those earning between £45,300 and £55,000, and a 40% rate thereafter
- Cut business rates for small businesses
Taxation policy affects business costs
For example, a rise in corporation tax (on business profits) has the same effect as an increase in costs. Businesses can pass some of this tax on to consumers in higher prices, but it will also affect the bottom line. Other business taxes are environmental taxes (e.g. landfill tax), and VAT. VAT is actually passed down the line to the final consumer but the administration of the VAT system is a cost for business.
What do small businesses do when Expecting Higher Taxes
- Pass the added costs on to their customers.
- Postpone plans to expand their business.
- Cut back on personal investments in their companies.
- Institute a hiring freeze.
- Cut back on existing staff.
- Cut business costs.
- Cut back on their own salaries or other compensation.
However on the upside this prompts businesses to build stronger relationships with clients, hunt for new business and fine-tune their business strategy.
What businesses should be doing in times of unsteady economy
A few thoughts from us: -
- Make sure your business financial record-keeping is accurate and up to date.
- Get professional help.
- Don’t delegate it all - stay up to date with current tax issues.
Staying on top of changes in tax laws can be taxing (excuse the pun), but if you don’t do so, you could be missing out on savings that could enable you to invest in your business, hire new employees and otherwise achieve your expansion plans.
A final thought from us
With the election being too close to call, it should be a fascinating few days ahead as the parties battle it out, and presumably look to make alliances.
One thing we are sure of is that given that tax in one of the two famous certainties in life (with death being the other one!) we will need to keep our professional ears to the ground!