General Elections from the Tax perspective for UK Contractors

With the General Election just days away, members of our team have looked at the manifestos of the two major political parties, with particular reference to the effects their proposals on tax will have to our contractor and SME clients. This first article, written by John Ball, looks at Labour proposed changes to the UK economy.

“When reading through their Manifesto one could be forgiven for thinking that Labour is concentrating on the ‘super rich’. Although they may say otherwise and claim it to be a fairer society, you just have to look at their proposals for income tax and it is obvious; a reintroduction of the 50p tax rate for people earning over £150,000, a proposed ‘mansion tax’ on properties worth over £2million, a dramatic reduction in pension tax relief for top earners and super-taxes on bank bonuses.

Since 2010 the Tories’ have increased taxes 24 times. Labour claim that this has left families £1,100 worse off since 2010; something they say that working people can’t afford another 5 years of. On the other hand millionaires have benefited from tax cuts. When the Tories cut the 50p rate of tax it resulted in a £3 billion tax cut for individuals that earn over £150,000. The Labour party’s take on this is that it isn’t fair, during a time when the majority of tax payers are paying more.

Labour has also promised that there will be no rise in VAT or national insurance, and that the tax rates for basic and higher rate tax payers will be frozen – something that the Tories have also recently announced in a plan to combat the Labour proposals. They have pledged to reintroduce the 10p lower starting rate, claiming it will help two thirds of the population. A key part of its promise to make Britain work for working people.

Labour has refused to rule out a rise in Corporation Tax, with accusations coming their way of being “anti-business”.

To many, all of these proposals may seem fair. The working class are of the impression that the super-rich should be able to afford these increases; just last year, in a LabourList survey, 40% of readers thought that a top tax rate set higher than 50% was fair, with as many as 13% of voters wanting the rate to be set at 60%.

Whilst each party are doing their best to win votes by whatever means possible, it must also be noted that the Institute for Fiscal Studies claim the British taxpayer should expect to feel worse off under whichever party wins the vote. Paul Johnson, director of the IFS, saying, “There’s nothing in any of the parties’ proposals that we think will help the good functioning of the economy”.

Can our society really prosper whilst the most successful seemingly get hit with higher tax rates?

Labour are going to hit the pockets of the top 1% and the business community hard, which could have serious implications for the rest of the UK; with critics claiming that the sort of policies Labour are proposing could really damage our society. The top 1% will earn just short of 14% of all income this year whilst paying just less than 30% of all income tax – a new record. This begs the question: are these proposals really fair?

The continued growth, or stability, of British business plays a huge role in economic growth and stability. Many businesses are now taking on a short-term approach to hiring, with the number of contractors in the UK on the rise; there are now more than 1.8 million according to Kingston University. Finding the right balance between rewarding their employees fairly for the work they undertake whilst keeping operating costs down may also be a reason for the short-term approach. On the other hand the short-term approach could be due to the upcoming election where employers don’t know where they stand with new corporation tax proposals. With Labour not committing to rule out an increase in Corporation Tax businesses are having to tread very carefully.