Labour’s tax proposals and what they mean for your money

Jeremy Corbyn with the Labour Party manifesto © Leon Neal/Getty Images

Nimesh Shah, partner at accountants and tax consultants Blick Rothenberg, outlines the Labour Party’s tax proposals, and explains how they might affect you.

See also

The Conservatives’ tax proposals and how they affect you
The Lib Dems’ tax proposals: how they will affect you

It will come as no surprise to learn that Labour’s proposals include an increase in taxes on high earners and big businesses, but small businesses and entrepreneurs will also find life much tougher.

The Labour manifesto includes detailed costings, showing additional revenue raising measures totalling £82.9bn by 2023/24. While in overall scope this is comparable to the Liberal Democrats’ proposals to raise £63bn by 2024/25, the balance is very different.

Almost all of the Labour Party’s yield comes from the wealthiest 10% of taxpayers (those earning over £80,000) and from business. By contrast, the Liberal Democrats would raise £7.7bn by increasing income tax by 1p for everybody, and would also have a “Remain bonus” of £14.3bn from staying in the EU.

Taxes on big business

Corporate taxes would increase significantly, from their current level of 19% to 21% from April 2020, rising to 26% by 2023. A “small profits rate” would be retained at 19% (rising to 21% by 2023), but this would apply only to firms with turnover below £300,000 – and with profits at a much lower level.

Other measures, such as the efficiency review of corporate tax reliefs (raising £4.3bn) and abolishing research and development credits for large businesses (£4bn), would also increase taxes on business.

The method for taxing multinationals is to change to a formula-based apportionment (“unitary tax”) which is estimated to raise £6.3bn. However, unitary tax has been discussed for many years, and while in principle it may be a better way of taxing the largest global businesses, in practice it will be fearsomely complex and is likely to require international agreement from the UK’s 100 plus treaty partners.

The financial transactions tax (£8.8bn) will be deeply unpopular with the banking sector and will also impose significant compliance burdens on companies which manage their commercial risks using financial instruments.

Small business and entrepreneurs

For entrepreneurs, this will be a much harsher landscape. Entrepreneurs’ relief, which gives a 10% rate of capital gains tax on up to £10m raised from selling a business, will be abolished. Combined with the alignment of income tax and capital gains tax rates, this means that selling a business is likely to face a 50% tax rate – a five-fold increase, which may mean that some decide not to set up a business at all – or to set it up outside the UK.

An owner of a relatively small business with profits of £400,000, paying corporation tax and then paying out all of the profits as a dividend, will see an increase in his or her tax bill from £199,000 to £252,000 (from the higher rate of corporation tax and the higher rate on dividends). That extra £53,000 would have paid the salary and overheads of an employee – will businesses be discouraged from expanding their workforce?

Tax avoidance

And finally, the expected yield of £6.2bn from the “fair tax programme”, tackling tax avoidance and evasion, is £0.5bn more than the Liberal Democrats’ estimate of £5.7bn – and is likely to be equally difficult to collect.

Overall, a large majority of the tax raising measures will come from UK businesses and entrepreneurs. Whilst many of the proposals will be popular with the electorate, the likely impact on jobs and the wider economy is hard to quantify, but is unlikely to be positive.

Tax calculator: see how each party’s plans affect you

Just type your salary into the calculator below from leading accounting and tax advisory firm Blick Rothenberg to see how much better or worse off you’ll be under each party’s plans.