Corporate tax proposals in UK general election manifestos

Out-Law News | 25 Nov 2019 | 2:44 pm | 3 min. read

The rate of corporation tax will not go below its current rate whichever party is in power after the UK's general election.

Labour also intends to change the way multinationals are taxed by introducing unitary taxation which it forecasts could raise £6.3 billion. A unitary approach to taxation treats groups operating across borders as single entities and then uses a formula based on sales, labour and assets to determine how much tax each group should pay in each country where economic activity occurs and value is created. Last month, Labour's shadow chancellor John McDonnell welcomed a report published by Public Services International, which recommended the introduction of unitary taxation. Labour has also announced a 'windfall tax' on oil and gas companies. It also plans to introduce a new financial transactions tax that it estimates would raise £8.8bn. This would involve extending stamp duty reserve tax stamp duty to forex and derivative trading.

Director of the Institute for Fiscal Studies (IFS) Paul Johnson told the BBC that Labour's proposals for additional taxes on companies would mean that the UK had “the most punitive corporate tax system in the world”.

Labour also intends to abolish entrepreneurs' relief, which taxes capital gains made by individuals on the sale of business assets at 10%, instead of 20%. This follows a recent report by the IFS which said that tax reliefs for company owner-managers do not boost investment. The Conservative manifesto says it recognises that entrepreneurs' relief hasn't "fully delivered on [its] objectives" and so it intends to "review and reform" it.

The Liberal Democrat manifesto says it intends to introduce a general anti-avoidance rule. At present the UK has a general anti-abuse rule. The Liberal Democrat Party said it would also set a target for HMRC to reduce the tax gap and invest in more staff to enable them to meet it.

The Liberal Democrat Party would also make changes aimed at multinationals, including reforming the place of establishment rules "to stop multinationals unfairly shifting profits out of the UK" and "improving" the digital sales tax "to ensure tech giants pay their fair share". The manifesto says that the party would "support and build on" the OECD’s proposals to require multinationals to pay "a level of tax which is more closely related to their sales in every country in which they operate".

The Conservative party manifesto says that it will introduce "further measures to avoid profit-shifting by multinational companies to avoid paying taxes" and confirms that it will implement the digital services tax. This new 2% tax on UK derived revenues of social media platforms, search engines and online marketplaces, is due to apply from April.

The Liberal Democrat manifesto said that the party would review the government's proposals to change the IR35 rules. These are due to come into force in April 2020 and would make private sector businesses engaging workers through off-payroll arrangements such as personal service companies (PSCs) liable for determining the tax status of contractors.

The Green Party advocates public country-by-country reporting and consolidated corporate tax across the EU to prevent profit shifting. It wants to change corporation tax rules to widen the definition of ‘profit’ to cover dividends, share buybacks, additions to cash holdings, payments to parent or subsidiary companies, both onshore and offshore, and other distributed income. The Green Part also wants to 'entrench the anti-avoidance principle' in UK tax law and oblige banks to provide information about companies automatically to HMRC.

The Green party wants to establish HMRC as an independent agency of government, "answerable to parliament". Its manifesto says this will "remove the power of politicians to strike secret deals with powerful corporations and individuals". It also wants to increase the tax on bank assets and apply stamp duty to share purchases of all values and to new share issues.

The Conservative manifesto says the party intends to introduce a new anti-tax avoidance and evasion law which will double the maximum prison term to 14 years for individuals convicted of the most egregious examples of tax fraud. The new law will also consolidate existing anti-evasion and avoidance measures and powers and introduce a new package of anti-evasion measures. The Conservatives also intend to create a single, 'beefed-up' anti-tax evasion unit in HMRC that will covers all duties and taxes and which will be put on a legislative footing.

The Conservative Party says it will have a fundamental review of the business rates system and as a first step will further reduce business rates for retail businesses and extend the discount to grassroots music venues, small cinemas and pubs.

Labour says it intends to review business rates and could instead tax property landlords.

The Liberal Democrat manifesto proposes replacing business rates in England with a 'commercial landowner levy' based solely on the land value of commercial sites rather than their entire capital value. They say this would shift the burden of taxation from tenants to landowners.

The Green Party wants to introduce an annual land valuation tax, charging the landowner a proportion, estimated to be around 1.4%, of the capital value of the land each year. This would replace not only business rates and council tax but also stamp duty land tax, capital gains tax on land sales, inheritance tax on land and income tax on land. The party says it would legislate to prevent landowners passing these tax costs back to renters and tenants.