Andrew Sanford, Partner – Audit, Assurance and Advisory
Income and expenditure
The Lib Dem costings summary is eight pages, consisting of only one page of calculations. It is very thin in detail and there is no numerical support of the numbers stated.
The numbers that are presented show projected income increases in 2024/2025 of £63,820m and additional spending commitments of £62,920m. However, the income includes £5,700m from additional funds raised from tackling tax avoidance. This promise is repeatedly made by all parties and it is unclear how this will come to fruition without investing in HM Revenue & Customs (HMRC) and their staff. A further £12,460m comes from funds committed in the recent government spending review. This in itself does not appear to be ‘new income.’
Of the additional income of £63,820m, some £14,300m is deemed to be a ‘remain’ bonus. This is not new income, simply what the Lib Dems perceive to be the potential money saved by not exiting the EU.
In terms of actual tax rises (excluding anti-avoidance measures), the income they expect to generate is £31,360m against expenditure of £62,920m. It should be put in perspective that they expect annually to raise just £7,740m from a 1% raise in Income Tax.
In short for every £1 of tax raised by increases in tax rates or new taxes, the Lib Dems are committed to £2 of additional spending
Finally, these numbers cover the period for 2024/2025. It is unclear as to when these proposals will be brought in, and how the staging of them will affect borrowing.
The Libs Dems are pledging an additional £130bn of capital expenditure, including £86bn on the climate emergency. They are committed to spending 2.4% of GDP on research and development, and businesses will no doubt be encouraged by that commitment.
Robert Salter, Employment and expatriate tax specialist – Global Mobility
Robert believes that employers will welcome the fact that the Liberal Democrats have not looked to increase employer NICs in their proposed manifesto. Employer National Insurance Contributions (NICs) are in many respects a tax on jobs and keeping employer NICs competitive from an international context, as the Liberal Democrats appear keen to do, helps ensure that the UK will remain an attractive place for foreign direct investment.
Whilst tax raises (or removal of tax allowances) are rarely popular with the public, the Liberal Democrats planned removal of the Married Couples Allowance may well be a low-risk proposal. Many married people (or those in civil partnerships) aren’t eligible for the Allowance anyway – it is only available if one partner earns under £12,500 per annum whilst the other one has income of under £50,000 – and the Government’s own numbers have indicated that many people who have been eligible for the Allowance historically have never applied for it.
The Liberal Democrats have stated in their manifesto that they will remove the tax-free capital gains allowance (presently worth £12,000 for the 2019/20 tax year), if they were to become the Government. Whilst many people don’t actually use their CGT Allowance each year and hence means that this is, in some ways, an ‘easy target’ for tax raising, the move could create additional recruitment and retention problems for smaller, high-tech start up companies. Such companies often provide their employees with shares in the company as a core part of the compensation package, to compensate for relatively low salaries and the removal of the CGT tax free allowance would make sure an approach less attractive to potential employees.
We have highlighted that, as with all tax changes, there are some hidden costs. In particular, these include:
- The fact that this change could create additional pressures for HMRC, with many smaller investors making limited capital gains (which have historically been covered by the CGT free allowance) now needing to start filing an annual tax return; and
- the move could create additional recruitment and retention problems for smaller, high-tech start up companies. Such companies often provide their employees with shares in the company as a core part of the compensation package, to compensate for relatively low salaries and the removal of the CGT tax free allowance would make sure an approach less attractive to potential employees.
Paul Haywood-Schiefer, Manager – Private Client
Capital Gains Tax (CGT)
Removing the CGT annual allowance (currently (£12,000) could cost someone up to an extra £3,360 in CGT [Note: Higher or additional rate taxpayer selling UK property or carried interest]. As the personal allowance is typically included in a person’s tax code as an allowance against earnings, it means anyone selling a small holding of shares for a gain will likely need to report these gains through self assessment. This could lead to thousands of taxpayers burdened with the requirement to complete tax returns each year. Unless they can become smarter with Making Tax Digital, more people completing tax returns to collect minimal amount of tax will be the likely outcome of this.’
Against current tax rates, a 1% increase in Income Tax could cost someone earning:
- £15,000 – £25 extra per annum
- £25,000 – £125 extra per annum
- £35,000 – £225 extra per annum
- £50,000 – £375 extra per annum
- £75,000 – £625 extra per annum
- £100,000 – £875 extra per annum
- £125,000 – £1,250 extra per annum
- £150,000 – £1,500 extra per annum.
Marriage Tax Allowance
They have ve also said that they will abolish the Marriage Tax Allowance (point 26). This is the measure effecting couples married or in civil partnerships, who were born after 6 April 1935, and where one partner has an annual income at or below the personal allowance for the tax year, (plus up to £5,000 of tax-free savings interest) and the other partner’s annual income is below the higher rate threshold for the tax year, but is above their own personal allowance. For these couples, they are allowed to transfer of 10% of the lower earner’s available personal allowance to their partner.’
This measure would hit the (just under) 1.8m claimants, who are amongst the lowest earners in the country, for an amount per couple of up to £250 each. This is for a saving to the treasury of just £535m per year or approximately 0.08% of the total receipts of HMRC in the last year (£631.57bn total received in the last 12 months). These taxpayers will also be hit by the additional 1% increase in Income Tax. This will catch many families and will likely be bad news for those couples where one parent is on maternity whilst the other remains at work to provide for the family.
Genevieve Morris, Partner – Head of Corporate Tax
Capital Gains Tax (CGT)
Taxing capitals gains and income from work more fairly – is this a greater indication of their intention to increases CGT rates so they are in line with Income Tax rates (at the increased rate they are proposing)? This wouldn’t just mean the potential additional tax of up to 28% on £12k but potentially a much greater tax take if capital gains were taxed as income.
Reforming place of establishment rules to stop multinationals unfairly shifting profits out of the UK
This could be a challenge given that the place of establishment rules are mostly set out in tax treaties agreed with other jurisdictions. Whilst they could change the UK tax law definition, this would be trumped by the treaty definition so potentially would achieve virtually nothing.
Restore Corporation Tax to 20% – reversing the Conservatives’ reduction of this tax to 17% – and keep the rate is stable with a predictable future path
This is an easy win. Not only would the 1% increase in tax be unlikely to impact on the attractiveness of the UK as a place to start up business or invest in to, but it would make the tax calculations a lot easier to do by mental arithmetic! This may be how they intend to simplify the tax system for businesses.
Improving the Digital Sales Tax (DST) to ensure tech giants pay their fair share
A move to change a tax that hasn’t even been introduced yet and is most likely to be overtaken by a BEPs designed multinational DST in due course – seems like a waste of time and unlikely to be something that they can push through before 1 April 2020 (the current introduction date for the DST). I’m sure they’d be better off to leave DST as it is and prevent even more uncertainty for international digital businesses.