Government to change tax law twice before election – How to prepare
The Chair of the Conservatives, Richard Holden, has said that there could be two more changes to UK tax law before the election – which is expected to be called in the latter part of this year.
The Guardian reported: “Rishi Sunak will cut taxes twice more before the election in an attempt to turn around the party’s position in the polls.”
While it’s possible that these changes won’t occur – they are just hints after all – as a business owner, you should pay attention, just in case.
What to do if the Government reduces personal taxes
When the Government reduced National Insurance Contributions (NICs) for employees from 12 per cent to 10 per cent after the Autumn Statement, they failed to also reduce it for businesses.
Yes, many individuals welcomed the changes, but businesses – who might not be the Government’s priority for the election – did not see any benefit.
On top of this, they also froze Income Tax thresholds, which could result in something called fiscal drag.
Fiscal drag is where an individual’s income increases due to inflation, pushing them into higher marginal rate tax brackets.
This results in them paying a greater proportion of their income in taxes even if tax rates remain unchanged or are lowered.
This hidden form of increased liability seems to be becoming more and more common and is something to watch out for if/when the Government changes tax laws in the coming months.
The lowering of the dividends threshold from £1,000 to £500 after April 2024 has also made accurate tax planning more complicated than ever so if you need further advice on any of these issues please get in touch with one of our team.
What to do if the Government reduces business taxes
This would be a welcome and major win for an already struggling group.
Businesses have been hit hard by a rough economy over the last few years so reduced business taxes would be a great thing for the Government to announce.
What are the chances of getting reduced rates? It depends.
If the Government is keen to get the economy up and running again, it might choose to create a favourable business environment through considerable reductions.
If they wish to gain favour with business owners before the election to improve their chances, it’s also a good bet that they reduce taxes for the self-employed and corporations.
However, if (as has been the case in the past) they wish to curry favour with lower-earning individuals before the election, it will be personal taxes that are changed, rather than business.
Reduced business rates could mean we get the benefit of some of the following:
- Increased profitability: Lower Corporation Tax means SMEs get to keep a higher portion of their earnings, leading to increased profitability.
- Capital for growth: SMEs can use the tax savings to invest in new equipment, technology, or hiring additional employees, which can enhance productivity and facilitate growth.
- Competitive advantage: Lower taxes can make SMEs more competitive in the market by allowing them to offer products or services at more competitive prices or invest in marketing and innovation.
- Job creation: With additional funds, SMEs may be more inclined to hire new employees, contributing to job creation and reducing unemployment rates in the local economy.
- Attracting investment: Lower corporate taxes can make SMEs more attractive to investors and venture capitalists, potentially leading to additional funding for expansion and development.
- Encouraging entrepreneurship: Reduced tax burdens can encourage entrepreneurship, as individuals may be more willing to start new businesses knowing that their tax liability will be lower.
- Financial stability: Lower taxes can improve the financial stability of SMEs, making them better equipped to weather economic downturns and uncertainties.
- Retained earnings: SMEs can retain more earnings within the company, which can act as a financial cushion for future challenges or opportunities.
Again, these tax reductions are only speculation, so we shouldn’t begin planning for this eventuality yet.
We think that the UK business sector is still in for some seriously difficult months ahead so, if anything, we are recommending that our clients do not get carried away with promises of tax cuts.
In fact, now is the perfect time to reassess your tax strategies and look at cost mitigation methods just in case the changes aren’t as beneficial as first hoped.
We can help you mitigate your taxes. Please get in touch with one of our team.
