The Labour Party manifesto seeks to crack down on tax avoidance and evasion and to simplify the tax system by reforming the system for corporate tax reliefs. Policies also include consolidating the taxation of income, dividends and capital gains with, broadly, only one tax free allowance available, as well as increases to both the corporate and personal tax rates.
Business Tax
Key proposals include increasing the corporation tax rate to 26% over 3 years and re-introducing a small profits rate of 21%. There is also a focus on simplifying the corporate tax relief system. Proposals to abolish entrepreneurs’ relief are also significant.
Key tax policies- Increase corporation tax rates, initially to 21% rising to 26% by April 2022.
- Reintroduce a small profits rate for firms with a turnover under £300,000 a year of 19%, rising to 21% by April 2021.
- Review the option of a land value tax on commercial landlords as an alternative to business rates.
- Treat corporate groups, under common ownership, as unitary enterprises to ensure that profits are declared, and taxes paid, where economic activity occurs and where valued is created.
- Scrap entrepreneurs’ relief and consult on a better form of support for entrepreneurs.
- Carry out a review of corporate tax reliefs for their effectiveness against their stated aims compared with alternative measures to achieve those aims. Seek to ensure stronger transparency and accountability concerning the creation and maintenance of corporate tax reliefs.
- Establish a small graduated levy on companies paying out high incomes: 2.5% for income paid above £300,000; 5% for income paid above £500,000; and 7.5% for income paid above £1 million.
National- Phase out the patent box relief and R&D tax credits for large corporations, while keeping the R&D tax relief SME scheme and increasing direct support for R&D.
- Ensure no quarterly reporting for small businesses below the VAT threshold.
- Guarantee no increases in VAT.
- Review permitting single director incorporations.
- Extend the time limit for HMRC to assess corporation tax in cases involving offshore income and gains to 12 years.
International- Introduce an additional charge at 20% on purchases by offshore companies and trusts of UK residential property, supplementary to existing stamp duties.
- Remove the trading exemption for indirect disposals by non-residents and replace it with an exemption targeted at small investors, with a £1 million limit. Also establish a £1 million limit on the exemption that means capital gains tax is only paid by an investor who owns more than 25% of the company, to prevent it being used as a mechanism for tax avoidance.
- Consider whether there is a case for de-recognising the Channel Islands Stock Exchange to close the Eurobond loophole.
- Conduct a comprehensive review of existing Advance Thin Capitalisation Agreements (ATCAs), and adopt a general presumption against making them.
- Continue to cooperate internationally to introduce full country-by-country reporting across jurisdictions.
- Promote fairer international tax rules and commit to becoming the third country to help fund the expanding work of the UN Tax Committee.
Regional- Support the steel industry in Britain by exempting new capital from business rates and investing in R&D.
- Give local councils new powers to tax properties empty for over a year.
Other measures- Introduce a new ‘use it or lose it’ tax for developers on stalled housing developments.
- Reverse cuts to the bank levy.
- Ensure country-by-country reporting is fully implemented domestically.
- Extend stamp duty reserve tax to forex spot and derivatives trades, interest rate derivatives, and commodities spot and derivatives trades at 50% of transactions costs. A discount of one-third will apply to financial firms. An exemption will apply to interest rate derivatives under three months’ maturity (to avoid cash-like transactions), and for the first £1,000 of foreign exchange transactions daily per market participant.
Green measures- Introduce a windfall tax on oil companies.
Private Clients
Key proposals include lowering the 45% additional tax rate threshold to £80,000, introducing a ‘Super-rich’ rate of 50% for income over £125,000 and removing the tax-free allowances for dividends and capital gains. They also include taxing dividends and capital gains at the same rates as all other income. Proposals to abolish entrepreneurs’ relief are also significant.
Key tax policies- Freeze National Insurance and income tax rates for those earning less than £80,000
- Lower the 45% income tax threshold from £150,000 to £80,000
- Create a new ‘Super-rich’ tax rate of 50%, applicable to income over £125,000.
- Tax capital gains with income at the same tax rate (capital gains will continue to fall outside the scope of National Insurance).
- Remove the annual capital gains exempt allowance (above a threshold of £1,000).
- Abolish the dividend allowance (subject to a threshold).
- Abolish the rates of tax applicable to dividends, and tax dividends alongside all other income and capital gains.
- Scrap non-dom status altogether in the first Budget, consulting on whether there is a need for an exception for foreign residents in the UK for a short period of time.
- Scrap entrepreneurs’ relief and consult on a better form of support for entrepreneurs.
- Reverse cuts to inheritance tax by abolishing the IHT main residence nil-rate band.
Other measures- Introduce an additional charge at 20% on purchases by offshore companies and trusts of UK residential property, supplementary to existing stamp duties.
- Introduce a new annual levy on second homes that are used as holiday homes, equivalent to 200% of the current council tax bill for the property.
- Retain capital gains tax exemption for primary residences.
- Introduce a ‘rate of return’ allowance (set at contemporary 10-year bond rates) so that gains below this rate will be earned tax free.
- Scrap marriage allowance.
- Impose VAT on private school fees.
- Remove the trading exemption for indirect disposals by non-residents and replace it with an exemption targeted at small investors with a £1 million limit. E establish a £1 million limit on the exemption that means capital gains tax is only paid if an investor owns more than 25% of the company, to prevent it being used as a mechanism for tax avoidance.
- Introducing reforms requiring individuals engaging in ‘profit fragmentation’ schemes to pay back the tax owed immediately as an enquiry into their scheme opens.
- Extend the sugar tax to milk drinks.
General measures
General avoidance and evasion measures- Provide stronger support for HMRC, transforming its power and resources, in order to clamp down on enablers of tax avoidance and evasion, as well as avoiders and evaders themselves.
- Draw up a list of tax havens and introduce sanctions against tax havens. Consult on the introduction of a withholding tax levied against any dividend, interest and royalties to individuals or companies in abusive tax havens. Consider the relationship between a withholding tax and double taxation treaties.
- Replace the General Anti-Abuse Rule with a more robust and wide-reaching General Anti-Avoidance Rule, based on the New Zealand model, to crack down on tax avoidance measures that escape specific anti-avoidance rules and help to catch exploitative use of trust and company structures in order to minimise tax. Remove the need for an Advisory Panel to approve prosecution.
- Strengthen the law on failing to prevent the facilitation of tax evasion, introduce harsher penalties for promoters of tax avoidance and evasion, consult on extending the Suspicious Activity Regime to tax avoidance and refer to the Law Commission whether lawyers’ use of legal professional privilege is facilitating tax avoidance and evasion, and whether the law should be changed to restrict this.
- Launch a 9-month public inquiry to investigate common tools of avoidance and evasion, and recommend policy measures to eliminate these tools, in particular, the use of offshore trusts, and whether there is the case for taxing further distributions from trusts or imposing a withholding tax on certain distributions from trusts, payable by trustees. The inquiry will investigate the tax treatment of equity and debt, to inquire into whether steps should be taken to ensure debt and equity are treated equally for taxation purposes.
- Ensure HMRC has resources to tackle umbrella agency schemes where they are used to avoid or evade tax.
- Advocate for tax avoidance to be seen as an Illicit Financial Flow in international institutions such as the UN, OECD, G7 and G20.
Other measures- Conduct a review of the UK’s network of double tax treaties, paying attention to the role of these treaties in facilitating tax avoidance in the UK and by UK companies in the Global South.
- Publish the tax returns of all individuals earning over £1million.
- Fully restore HMRC’s preferred creditor status.
- Ensure any company that has failed to pay its fair share of tax is excluded from tendering for public contracts.
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Sources
https://labour.org.uk/wp-content/uploads/2019/11/Real-Change-Labour-Manifesto-2019.pdf
https://labour.org.uk/wp-content/uploads/2019/11/Real-Change-Tax-Reliefs.pdf
https://labour.org.uk/wp-content/uploads/2019/11/Funding-Real-Change.pdf
https://labour.org.uk/wp-content/uploads/2019/11/Fair-Tax-Programme-2019.pdf
DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
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