Next week, we’ll hear the news on who’s set to become the UK’s next Prime Minister. We’ve taken a look at the candidate’s policy announcements in relation to tax. Keep in mind, these are elections pledges, and therefore not yet proposed legislation. We spoke to Tom Penman, Tax Partner at Belfast’s Baker Tilly Mooney Moore on the Conservative’s leadership candidates plans for tax.
Tom Penman on Boris Johnson
At the time of writing, Boris Johnson’s tax policies are:
Raising the higher income tax threshold from £50,000 to £80,000.
Individuals currently pay 40% income tax on annual earnings over £50,000. So, for example, if you have taxable earnings in the current year of £60,000 you would pay 40% income tax on £10,000. These proposals would see the 40% rate only apply to taxable earnings over £80,000. It should also be noted that the accompanying raise to the ceiling for National Insurance contributions means that those higher rate tax payers who receive salary would see their NI contributions increase, offsetting at least the benefit of the income tax rate change.
Under this new tax regime, someone earning £60,000 a year could benefit by £1,000 a year, while someone on £80,000 or more would gain a maximum of £3,000 – as the corresponding national insurance also increases. Realistically, the main winners of this proposal would be wealthy pensioners who would receive the benefit of the income tax threshold rising, without the corresponding NI increase.
Raising the point at which people start to pay National Insurance (NI)
Raising the point at which people start to pay NI would directly benefit working people on low incomes. Up to now, the detail of this proposal has not been clarified. According to Boris Johnson these tax reductions will cost around £10bn a year and will be funded by “fiscal headroom”. Considering his other policy announcements around increasing public sector pay and school funding, it does seem strange that Boris Johnson is able to find funds that no-one else in his party has been able to in recent years.
Tom Penman on Jeremy Hunt
Jeremy Hunt’s tax policy announcements focus on business taxes.
Cutting Corporation Tax to 12.5%
The proposal is that corporation tax should be cut from the current 19% (scheduled to go down to 17% in April 2020 anyway) to 12.5% – the same rate as in the Republic of Ireland. The estimated cost of this measure is about £14bn a year, assuming the economic boost caused by this measure would pay for it.
Taking 90% of businesses out of business rates
This is a policy popular with businesses that pay these rates irrespective of profitability. The details of this proposal have not been clarified either. No formal costings have been provided, however, estimates of the potential costs range from £900m to £1.35bn per year.
Increasing the annual investment allowance to £5m
This measure would increase the amount a business can deduct from its profits for tax purposes in respect of its capital expenditure. At the start of the year, it was temporarily raised from £200,000 to £1m. As this is a cost base tax relief, its usefulness depends on the number of businesses that see this additional allowance as enough to persuade them to spend more on capital assets than they would have anyway.
Most criticism of the candidate’s tax election pledges has come from within the Conservative Party itself. Both candidates have faced scrutiny from the Chancellor of the Exchequer as to the availability of funds to facilitate these tax cuts, coupled with their other spending pledges.
The real question is how much attention should we pay to these pledges? Whoever wins the election; their first priority is going to be Brexit. Is it plausible therefore during whatever transpires in September and October that these pledges are “forgotten” and the questions as to how they should be funded forgotten with them? And of course, if there’s a general election, well then who knows what will happen next…