A government with a large majority should provide a more certain environment for investors and inject greater confidence in markets, at least in the short term. The UK will leave the EU in seven weeks, with a harder break likely at the end of the transition period in December next year. Other changes to the business environment, including tax and employment rights, will take place too. Conservative policies may pivot towards their new constituents in towns left behind by globalisation.
Here is our initial analysis of what the election result means for the UK business environment and actions businesses and employers can take.
On 31 January 2020, the UK will leave the EU with an elevenmonth
transition period. Most arrangements will not change during the transition period, but it may have some implications for international tax from 31 January 2020. On 31 December 2020, unless the transition period is extended (which the Prime Minister has ruled out):
• the UK will be out of the single market and out of any form of customs union
• cross-border withholding tax changes may take place
• new customs processes and cross-border VAT arrangements will commence
• either a free trade agreement will be in place or Great Britain will trade on WTO terms with the EU
• special customs and VAT arrangement will apply to goods in Northern Ireland, creating a ‘softer’ Brexit there
Any businesses benefiting from EU status within domestic tax law in EU member states should urgently review implications of the UK leaving the EU on 31 January. All businesses should prepare for a hard Brexit in December 2020 and put in place arrangements and adjustments for new customs and VAT processes.
The Government has committed to a five-year taxation ‘triple lock’: no increases in income tax, national insurance or VAT. The Chancellor will set out the Government’s 2020 Budget in February or March, confirming tax rates for April 2020 as well as any additional 2020/21 spending (most 2020/21 spendingwas confirmed in September), and longer-term fiscal policies. This will include their pledge to raise the National Insurance
threshold to £9,500.
In their election manifesto the Conservatives also committed to ‘redesign the tax system so that it boosts growth, wages and investments and limits arbitrary tax advantages for the wealthiest in society’.
It will be important to map out what the changes mean for you.
Income and capital gains tax
The government has committed to review and reform Entrepreneurs’ Relief, referring to this as one of the tax measures ‘that haven’t fully delivered on their objectives’. Entrepreneurs will need to weigh up whether they need to
take any action in advance of these changes.
No announcements have been made.
The Conservative manifesto made no new announcements concerning inheritance tax albeit it is possible that some changes might be made.
Stamp Duty Land Tax
The manifesto announced that it will bring in an additional Stamp Duty Land Tax surcharge on non-UK resident buyers. This will apply to companies as well as individuals, and to expats.
Corporation tax is to be maintained at 19%. Previous plans to reduce this to 17% have been dropped.
The Conservatives have confirmed that the Seed Enterprise Investment Scheme and Enterprise Investment Scheme will continue in the next Parliament. The manifesto proposes to increase R&D tax credits to 13% and consider broadening its scope to areas such as cloud computing and data.
In addition, the manifesto pledges to implement the Digital Services Tax from April 2020, a 2% tax on the revenues of search engines, social media platforms and online marketplaces which derive value from UK users.
The new changes could have important implications for some businesses.
Tax avoidance and reliefs generally
The Government propose new measures to tackle tax evasion and reduce opportunities for aggressive tax avoidance. Changes include:
• Doubling the maximum prison term to 14 years for individual’s convicted of the most serious examples of tax fraud
• Creating a single, more resourced Anti-Tax Evasion unit in HMRC that covers all duties and taxes from individual errors to deliberate non compliance.
• Consolidating existing anti-evasion and avoidance measures and powers
• Introducing a new package of anti-evasion measures
The Conservatives have pledged not to increase VAT.
Structures and Buildings Allowance (SBA)
Their costings document mentions a further 1% increase (to3%) in the SBA for expenditure on the purchase, construction or renovation of non-residential buildings and structures.
The Conservatives propose a fundamental review of the business rates system. For one year (2020-21), they will increase the business rate discount for small retail businesses, and extend it to local music venues, small
cinemas and pubs.
The Conservatives will increase the Employment Allowance by £1,000 per business for small businesses.