Friday, March 29, 2024

Tax cuts on the horizon? By Michael Ball, tax partner at Streets Chartered Accountants

Michael Ball, tax partner at Streets Chartered Accountants, considers the impact the potential new Prime Ministers might have on the tax system.

Now that we know the final two candidates who will contest the conservative leadership contest, and therefore that one of either Rishi Sunak or Liz Truss will be the new Prime Minister in the Autumn, let’s have a look at what this might mean for the tax system.

As Mr Sunak was, until fairly recently, the Chancellor, it is perhaps understandable that he has not pledged any variation to the current intended tax changes – although he has said previously that he “firmly believes in cutting taxes” and as part of his leadership bid has said that “once we have gripped inflation, I will get the tax burden down. It is a question of ‘when’, not ‘if’.”

Therefore, if he was to win the leadership race, we can expect the health and social care levy of 1.25%, currently collected via an increase in NIC, to continue to be implemented as planned in April 2023.

We can also expect the planned rise in corporation tax in April 2023. This will reintroduce a tiered approach to corporation tax, with profits under £50,000 continuing to be taxed at 19%, profits above £250,000 being subject to the main rate of 25% and those profits in between being taxed at a tapered rate.

In contrast Ms Truss has pledged a number of tax cuts including to scrap the health and social care levy and the planned increase in corporation tax, as well as the suspension of green levies on energy bills.

It is interesting to note that at this point, and with the cost of living continuing to rise, neither have mentioned a cut in VAT. Nor have either of them, as yet, mentioned the tax that has been rising significantly in recent years, and that is inheritance tax. Whilst a large proportion of estates still do not pay inheritance tax, and this is perhaps why it is not high on the political agenda, not as many votes in it, with the increases in property values we have seen over the last few years, more and more estates have been brought into charge.

If Liz Truss is the next PM we can, it would seem, look forward to tax cuts in the short term. Whereas if it is Mr Sunak who moves into No 10 there may well be cuts eventually but, as is often the answer in tax, it depends.

Whichever takes office it is my hope, but not expectation, that politics will take a back seat in planning the tax policy of the future. Our tax system has become increasingly complex in my 15 years in the tax profession, and this has too often been as a result of politically motivated tinkering around the edges.

The recently released Office for Tax Simplification (OTS) report includes a recommendation “that the principle of simplification should be embedded in the general tax policy making process.”

We can only hope that whoever takes over at No 10 listens to this advice.

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