Where might Labour's roadmap for business tax take us?

The business tax road map will set out Labour’s plans for business taxation over the next five years and is designed to provide stability for businesses whilst creating an environment conducive to growth.

Earlier this year Labour published its five-point plan for growth, and in this article our experts consider how taxation could be used to help achieve this plan and consider what could be included in the road map. 

With Rachel Reeves becoming the sixth Chancellor in five years, British businesses need stability and that stability is the first area of focus for Labour’s five-point plan. Labour has already committed in its manifesto to cap the main rate of corporation tax at its current level of 25%, a level it believes balances the needs of the public finances with the demands of a competitive global economy.

Making Tax Digital (MTD) was launched by HMRC in 2015 with the aim of digitalising the UK tax system, but from the outset it has suffered delays.  A clear and fixed timetable for its implementation would help restore business confidence in the programme. The Government could acknowledge that this will be a cost to business and consider providing some form of subsidy, alongside a commitment to engage with business and the software community to smooth the transition.

Part of Labour’s commitment to a stable tax system is its continued support of research and development (R&D) tax credits. Originally introduced by Labour in 2000, recent budgets have seen sweeping reforms, some of which were pushed through the legislative process very quickly.

The long-term stability in R&D tax policy will be welcomed by innovative businesses, giving them the confidence to factor tax incentives into their R&D investment plans. However, the new Labour Government should keep the recent reforms introduced by its predecessor under review. It should actively seek feedback from businesses in key R&D sectors and not shy away from taking quick action to correct any unforeseen negative effects.

We expect further funds to be committed to HMRC to tackle fraud and error in R&D claims, which should help the long-term success of the incentives. We would like to see that measures ensure compliance teams have both the right volume and the appropriate scientific and technological expertise.

Capital allowances are a key way for tax policy to drive investment and businesses have welcomed Labour’s commitment to maintain the 100% full expensing (FE) and Annual Investment Allowance (AIA) reliefs. We await the findings from the technical consultation into extending FE to include leased plant and machinery.

Linked to backing business success, we would like to see improvements to relief for capital expenditure used for R&D. Research and Development Allowances (RDAs) currently provide limited additional relief over non-R&D allowances. The UK is particularly lacking effective relief when compared with other jurisdictions. This is an opportunity to drive long term capital investment in high growth, high value UK industries.  

In the short-term, to make the UK a more competitive investment destination, we would like to see two key changes to the current RDA regime:

1. Improve the rate of tax relief provided for qualifying capital expenditure above the 100% available for FE, and
2. Provide the option of ‘surrendering’ the qualifying expenditure in return for a tax cash credit.   This would help the significant number of R&D relief claimants that are loss making.  There is also precedent for payable credits within the capital allowances system (payable credits existed for enhanced capital allowances up to 2020)

The final two points in Labour’s growth plan focus on kickstarting a skills revolution and making work pay.   Labour’s manifesto has already pledged to reform the current Apprenticeship Levy into a Growth and Skills Levy, giving businesses more flexibility to access the training their workforce needs.  

Worker status remains a focus for HMRC and there have been several high-profile cases in recent months. Whilst the flexibility to choose between different working models is good for the UK labour market, the uncertainty around worker status and associated tax risks is not helpful. There have been calls for a statutory employment status test, and whilst this may not be a priority or difficult to achieve in practice, we would like to see a commitment by the Government to take action to reduce the uncertainty.

Finally, the Government has expanded the Low Pay Commission’s (LPC) remit on National Minimum Wage and have asked it to consider the cost of living when recommending a rate for April 2025. The LPC has estimated that it may recommend a rate of £12.39 or higher. Businesses should be prepared for this increase when forecasting for FY25 and we would welcome confirmation on the new rate as early as possible to give businesses time to prepare. 

We have seen business tax road maps before, in 2010 and 2016, when they were generally well received by the business sector. These road maps provided some clarity helping businesses plan with greater confidence.  

The Chancellor has also recently announced a digital transformation roadmap that is expected next Spring and will set out HMRC’s vision to be a digital first organisation.

As we await Labour’s new business tax road map, it is hoped that it will build on these earlier successes, addressing current challenges and fostering a fairer, more resilient environment for businesses.

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