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Labour manifesto

Labour tax increases

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Has anyone had a look at the Labour manifesto?

Just a couple of points that I have picked out: -

- Small company rate of corporation tax to apply to companies with TURNOVER under £300K. I hope that is a typo.  If not then even micro companies can look forward to a 26% full rate of corporation tax.

- Tax treatment of income from dividends to be equalised with other income.  This suggests that the basic rate of dividend tax will go up from 7.5% to 20%.

Taking these together this suggests that a small company owner who is a basic rate income tax payer will bear an overall tax rate of 40.8%, and a higher rate taxpayer will bear 55.6%.  Ouch!

 

Replies (32)

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By Open all hours
21st Nov 2019 19:43

I signed up to receive a copy of the Labour manifesto. Big welcome followed but as of now, 19.43 Thursday, nothing received yet. Wow, politicians fail to deliver, who would have thought it.

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Replying to Open all hours:
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By Accountant A
21st Nov 2019 21:29

Open all hours wrote:

I signed up to receive a copy of the Labour manifesto. Big welcome followed but as of now, 19.43 Thursday, nothing received yet. Wow, politicians fail to deliver, who would have thought it.

Just wait until you have Big Brother broadband ....

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Psycho
By Wilson Philips
21st Nov 2019 19:53

Not if profits are drawn as salary. And since (cough) running a business via a company is not a tax-motivated decision (cough) that seems quite fair

But don’t worry, it’s not going to happen - on the basis that I’ve yet to meet a poor bookie. The shortest odds that I can currently get on Corbyn getting to No 10 are 12/1. The longest odds that I can get on Boris staying where he is are 1/20.

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
21st Nov 2019 20:12

But they do sometimes get things wrong as my wife's late grandfather explained to me, he experienced a bad run of adverse outcomes which nearly destroyed his business as a bookie in Edinburgh. (Appreciate this was back in a less sophisticated world (1930s- 1970s) where laying off bets was somewhat more difficult than it would be today.)

Anyone who has got say a 25-1 winner on a single bet (Rubstic, Grand National was my one, albeit half of Scotland won on him), knows that strange things
sometimes happen. (like you I find the prospect highly unlikely but I believe that it has been known for a tossed coin to land on its edge)

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Replying to DJKL:
Psycho
By Wilson Philips
21st Nov 2019 20:25

Yep - they also got it wrong in June 2016, although the respective odds were much closer.

The Grand National equivalent in this case would be the keys being handed to Jo Swinson.

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Replying to Wilson Philips:
Hallerud at Easter
By DJKL
21st Nov 2019 21:03

She frankly has more chance jumping the fences at Aintree quicker than the horses.

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Hallerud at Easter
By DJKL
21st Nov 2019 21:01

Well looking at the plus points, the new taxes would possibly solve any IR35 planning issues/concerns (salaries are the new dividends), we would not get so many coming on here having set up companies before taking advice as the man in the pub said it was a good idea, pretty soon there likely will be no such thing as capital gains tax and if you shifted your BTL flats into a company you certainly might be feeling a bit off colour if it all comes to pass so will pay your nice accountant to get them out again.

And then we come to supply and demand for tax planning, this could mean great fees for the few not the many, in effect "Accountants for Corbyn"

Now better get my company wound up pdq to still get capital treatment before it is too late.

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By Accountant A
21st Nov 2019 21:16

One thing that "grinds my gears" is wilfully referring to companies as if they exist independently of anything else - for example the people who own (directly or indirectly) the shares. It's easy to say you'll shaft shareholders with windfall taxes and seizing 10% of the shares for "the workers" (who, of course, will see very little) when your pension arrangements are a gold plated final salary arrangement - which will pay out irrespective of the performance of underlying investments.

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By lclackett
21st Nov 2019 21:17

I'm glad to see someone else has picked up on this. I thought I was the only one. The BBC certainly haven't picked up on this yet in their analysis. I did miss the small company rate bit though. I hope that's just a mistake as you say. It's frightening to say the least.

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By whitevanman
21st Nov 2019 22:46

The problem with manifesto proposals is that they are often found to be unworkable / not fit for purpose.
Take for example the turnover basis for charging lower/higher rate of CT. Some businesses sell items as owner, making a fairly small gross profit. So, turnover £1m GP say £100k. Alternatively, they sell the same as agent receiving commission only of £100k (T/O £100k).
Company A pays full rate whilst Co B pays only lower rate. Manifestly unfair and unjustifiable. Even worse if you consider businesses making really small GP where sales of £1m might produce GP of only 2%.
As I say, lots of policy proposals of this type drop off the perch (along with their proposers) as soon as someone who understands the subject, shines a little light on them.
Of course that just means people cannot be certain what will happen even when they have a copy of the manifesto in hand (or even when one of the bands of self serving so and so's gets in power).
If I was a bookie, I would only worry about the bets placed on " none of the above". I cannot see any party getting a majority and we could face another unholy alliance working hard to make a complete Town Halls of it.

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By SXGuy
22nd Nov 2019 06:15

Oh the old tax should be based on turnover argument. Heard that one for a few years now, usually out of mouths of people who haven't got the foggiest what they are talking about.

This all come about when there started to be an uproar in companies like amazon not paying any tax.

Clearly not workable. As someone else just said. A company can have a 400k turnover but only have a small GP, while others could have a massive GP and be under 300k both paying different rates.

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By atleastisoundknowledgable...
22nd Nov 2019 07:42

“Small company rate of corporation tax to apply to companies with TURNOVER under £300K.”

What page was that on? I had a look at it last night and couldn’t find it.

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Replying to atleastisoundknowledgable...:
By jon_griffey
22nd Nov 2019 09:15
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Replying to jon_griffey:
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By Bobbo
22nd Nov 2019 13:42

Think that has been rapidly corrected because as I read it now it very clearly says "reintroduce a small profits rate for firms with profits under £300,000 a year"
That small profits rate being 19% then rising to 20% then 21%.

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Replying to Bobbo:
RLI
By lionofludesch
22nd Nov 2019 13:59

Ach - turnover, profit - what's the difference to a politician ?

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By nrw
22nd Nov 2019 09:07

If dividends are to be taxed on the recipient (shareholder) at the same rate as salary, will dividends then become CT deductible to level the playing field or will distributed profits be subject to both (an increased rate of) CT and (an increased rate of) income tax?

This would give rise to a top tax rate of 63% on distributed company profits (26% CT followed by 50% income tax on dividends).

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RLI
By lionofludesch
22nd Nov 2019 09:29

Is there supposed to be some correlation between a manifesto and what actually happens after the election ?

Surely no one on here is so gullible as to believe that ......

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Replying to lionofludesch:
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By nrw
22nd Nov 2019 09:32

lionofludesch wrote:

Is there supposed to be some correlation between a manifesto and what actually happens after the election ?

Surely no one on here is so gullible as to believe that ......

POLITICIANS NEVER LIE

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Replying to nrw:
RLI
By lionofludesch
22nd Nov 2019 13:54

Maybe they're just mistaken but Boris's claim that we had the lowest Corporation Tax rates in Europe was clearly nonsense.

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By bernard michael
22nd Nov 2019 10:04

As Jeremy is fairly old he won't expect to live long enough to feel the full impact of the various b******s in the manifesto
EXCEPT he's forgotten 1
As Prime Minister he will receive a salary higher than as Leader of the Opposition. The new tax rates for the "higher earners" will mean he won't get much more net after tax
What a P***k !!

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Replying to bernard michael:
RLI
By lionofludesch
22nd Nov 2019 11:41

Money's not everything. Jeremy's not likely to run out of it before he needs to pay for his funeral.

Plus - he has a State Retirement Pension.

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By ireallyshouldknowthisbut
22nd Nov 2019 10:21

The £300k turnover/profit balls up aside.

(a) I see no logical reason why tax on investment income is not the same as tax on salary, albeit you need to account for CT already paid.
(b) I see no reason why tax on capital gains should be so low (most clients are shocked how little CGT they pay, although we do need index linking back)
(c) I see no reason why corp tax rates are so low.
(d) I see no reason why small incorporated bodies pay less tax than sole traders.

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Replying to ireallyshouldknowthisbut:
Psycho
By Wilson Philips
22nd Nov 2019 10:32

(a) I agree - are we heading back to tax credits on dividends and ACT?
(b) I agree
(c) I disagree - whether or not one thinks that it has the desired effect, the logic is that low CT rates should encourage investment in business in the UK.
(d) I agree

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Replying to ireallyshouldknowthisbut:
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By johnhemming
22nd Nov 2019 13:41

There are always arguments about the impact of tax rates on investment.

For example, there is an argument that if CGT rates are too high this discourages people from doing capital transactions. That is obviously true at some point, but the question is whether the current marginal rates are below that point or not.

Another argument on investment income is that encouraging investment is a good idea and hence if you penalise investment income (and capital gains) then you will get fewer people willing to invest in the UK.

Personally I think the concept of the Laffer curve is used in situations where it is not valid, but the underlying principle that if tax rates are too high the government gets less tax in aggregate is obviously true. What is not so obvious is the rate at which this applies.

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Replying to johnhemming:
By ireallyshouldknowthisbut
22nd Nov 2019 14:24

@John, there is certainly a point at which a disincentive to invest may arise.

But in my view entrepreneurs and other capital builders don't really give too hoots about future taxes if the business comes off. That is not what motivates them to build up the business in the first place at all.

Capital taxes are unbelievably low right now, and many things being sold now were bought 10, 20 or 30 years ago when the rates were much different, so I don't believe there is much of a connection between genuine investment and the rate of CGT as anyone undertaking long term investment would reasonably assume the current regime wont apply by the time they sell up in 20 years.

@wilson, I don't believe that the 19% rate of corp tax is encouraging business to relocate to the UK and pay more taxes here. Most business are here as they trade here and the owners live here so have to pay the prevailing rate. The official figures all show lower rates = lower tax haul. International businesses might have a head office here , but quickly siphon off all the cash to lower tax jurisdiction if they can. It would be much better to look at transfer pricing rules to ensure income earned in the UK is properly taxed here. We have a very low rate of CT internationally in any case. A CT rate of 25% would be perfectly OK in my opinion.

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Replying to ireallyshouldknowthisbut:
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By johnhemming
22nd Nov 2019 15:21

There is also a question of a disincentive to divest. I don't have a view as to precisely what would be the best rate, but it is clear that the higher capital taxes are the fewer there will be capital transactions. You then need to consider the a combination of the overall tax take and the merits of capital transactions.

There is also the factor that if people leave the UK before making a capital transaction the UK would not necessarily get any tax from the transaction.

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By Michael Davies
22nd Nov 2019 10:40

It never ceases to amaze me how badly advised senior politicians are.Fiona and Tim blew Theresa May out of the water and destroyed her chance of a majority last time round.Now we have the turnover Horlicks in the Labour manifesto.
This week I read head of M&S clothing (which has gone south ) getting a new plum job.Really ?

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By Michael Davies
22nd Nov 2019 10:40

It never ceases to amaze me how badly advised senior politicians are.Fiona and Tim blew Theresa May out of the water and destroyed her chance of a majority last time round.Now we have the turnover Horlicks in the Labour manifesto.
This week I read head of M&S clothing (which has gone south ) getting a new plum job.Really ?

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By petercooperuk
23rd Nov 2019 11:19

I see a couple of problems with small businesses with profits >£300k.

First, the incentive to save a "buffer" for a rainy day will disappear. If you can't accumulate profits and then withdraw them later at a rate better or equivalent to a salary, why bother? Companies will begin to run more on cashflow and immediately pay out higher salaries to the owners. This could cause problems when there are economic shocks or simple cashflow issues.

Second, we'll see a lot of tactics for reducing profits to under the magical £300k value. Some of these tactics will, however, be beneficial from a Labour POV.. such as increased salaries/bonuses or bigger pension contributions. Even buying new equipment each year, etc, will ultimately benefit the economy in some way, although it remains to be seen what happens with AIA to make that viable.

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Replying to petercooperuk:
RLI
By lionofludesch
23rd Nov 2019 17:00

Why won't companies be able to save for a rainy day ? Profits are taxed when they're earned.

Presumably we'll be looking at some sort of crazy marginal-rate-which-is-higher-than-the-rate-on-profits-above-the-marginal-rate-threshold again .......

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Replying to lionofludesch:
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By petercooperuk
23rd Nov 2019 22:41

If a business owner is looking at, say, a £250k profit just before the end of the company's accounting period under such a tax regime, it may be considered prudent to immediately declare hefty bonuses for the owner/shareholders. It would be taxed as income, but at least it wouldn't be subjected to both corporation tax and then income taxes when extracted as dividends later on.

It's a common occurrence under the current regime to retain profits within the company and extract them later on (perhaps in order to make best use of tax brackets). With the new regime, I don't see such a large motivation to do so, but maybe I'm missing something?

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By bernard michael
23rd Nov 2019 11:26

Always wanting to look on the good side. If Labour wins and introduces it's manifesto into law the accountancy profession will be overworked but more profitable and able to pay the extra taxes

Ho hum - s0me you win

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