General Election: Tax Planning For SMEs?

With the upcoming General Election we are thinking about tax planning for SMEs.

The 4^th July election day will be with us before we know it and many SME business owners are starting to think about whether they should undertake any protective actions. Especially if they think a change in government is looking likely.

The manifestos for both main parties have now been published and these make the following pledges in relation to tax and other areas that might be of interest to SME’s:

Conservatives:

• Increasing the joint income threshold above which Child Benefit becomes repayable from £60k to £120k.
• Employees NIC to be reduced by a further 2%.
• Self-employed NIC to be abolished.
• Increasing the personal allowance for pensioners, so that those only receiving income from a State Pension pay no Income Tax.
• Not to increase rates of Income Tax, VAT, Corporation Tax, Capital Gains Tax or Stamp Duty Land Tax. No changes to pension tax rules.

Labour:

• Charging VAT on private school fees.
• Stopping carried interest tax treatment by private equity firms.
• Increasing stamp duty on purchases of residential property by non-UK residents.
• Introducing a windfall tax on energy giants profits.
• Not to re-introduce the £1,063,000 lifetime allowance cap on pension contributions.
• Not to increase rates of Income Tax, NIC, VAT or Corporation Tax. No mention on Capital Gains Tax and Inheritance Tax.

Coincidentally, or not, these different policies are budgeted to affect the Nation’s finances to the same extent:

Source: Information found via the OBR website -A brief guide to the public finances, Conservatives website – Manifesto 2024, Labour website – Labour’s Manifesto

If we do get a change in government and tax changes (expected or not) do materialise, then the effective introduction date for these changes will probably be 6 April 2025 – i.e. after a 2025 Spring Budget, or possibly earlier, if a 2024 Autumn Budget is called. So there is perhaps no need for quick protective actions now. However, if you do expect tax changes later and if these actions also make sense commercially and for you practically, then actions you may wish to consider, to lock into the current regime and mitigate your exposure to change, include:

• Sell any assets ‘pregnant’ with gain, that will crystalize a Capital Gains Tax liability under the currently historically low rates:
• • 10% if a trading business asset (property or shares)
  • 18% if residential property and you are a basic rate taxpayer
  • 24% if residential property and you are higher rate taxpayer
  • 10% if other assets and you are basic rate taxpayer
  • 20% if other assets and you are higher rate taxpayer
  • Gifting assets to spouse and/or the next generation, where there currently is an attractive Capital Gains Tax (e.g. holdover relief election on trading business shares or premises) and Inheritance Tax treatment.

• Pay future private school fees in advance (although future anti-avoidance VAT rules may capture such payments received in advance of the service being delivered)

• Both parties are pledging to reduce the ‘tax gap’. So, as well as more robust HMRC tackling of tax evasion, perhaps prepare for possible changes to tax treatments that are currently considered ‘generous’, for example:
  • More personal service company engagements that could become subject to IR35 rules.
  • Company twin-cab pickups being taxed as a car rather than as a van.
  • Research & Development Corporation Tax relief being further restricted.
  • Maximum employer pension contributions being reduced.
  • HMRC extending the Making Tax Digital project to, perhaps:
    • Collect corporation tax earlier.
    • Require all sales invoices to be issued electronically, through a system where HMRC are notified of the VAT element.
    • Not allowing retailers to be ‘Cash Only’

Get In Touch

As with all tax planning, please speak top your usual Whitings adviser or local Whitings LLP office first.

Disclaimer - All information in this post was correct at time of writing.