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For the most part, Labour’s manifesto promises on business tax are similar to those of the outgoing government. The differences between the two main parties are vanishingly thin.

Overall, it looks like the Labour party is committed to maintaining the status quo, and hopes that the longed-for economic growth will boost profits and generate enough corporate tax revenues to meet its spending commitments.

Certainty

The Labour party manifesto contains a pledge to cap corporation tax at 25% for the life of the new parliament, but hints at a reduction in the rate to ensure international competitiveness if that becomes the direction of travel globally.

Although businesses will appreciate a commitment to no further increase, they may feel that the rate of tax on corporate profits is already on the high side, having increased in April 2023 from the previous settled rate of 19%.

The incoming Labour government has also promised a business taxation roadmap to plot a long-term course, and committed to stop tinkering with the system, with just one major fiscal event per year.

Capital expenditure incentives

The Labour party has promised to retain the permanent full expensing of capital expenditure incurred by companies on new plant and machinery and the annual investment allowance (AIA).

The latter measure was framed in the manifesto as a benefit to small business, though the AIA applies to all businesses, giving full relief on acquisition for up to £1m of expenditure annually that would otherwise only qualify for relief over a much longer period, for example, on integral features in buildings.

Capital intensive businesses will no doubt welcome the policy commitment in these areas, which counterbalances the increased tax rate, though capital light businesses will continue to miss out.

Unlike the outgoing government, there is no comment on extending full expensing relief to the leasing industry and no doubt that will be watched closely by interested groups in an upcoming budget.

Business rates and other taxes

The Labour party’s commitment to reform the business rates landscape could represent a more significant area of change to existing rules.

Annual business rates currently generate around £27bn, so represent a significant source of revenue to the government coffers, albeit around half of what corporation tax generates. 

Labour’s manifesto pledge is to raise the same revenue from business rates, but more fairly, and ‘level the playing field’ between high street retailers and their online competitors.

There is also a promise of a time limited extension and modifications to the current windfall tax on the largest oil and gas groups.

When combined with the promise to clamp down on large corporate 'tax avoidance', it looks like the new government plans to target the largest businesses to shoulder the heaviest business tax burden, which will presumably include the global technology giants. 

The Labour party has vowed to ensure that taxes on working people are kept as low as possible. Specifically, it has stated that it will not increase National Insurance contributions, income tax, or VAT.

Crucially though, there is no such undertaking on capital gains tax (CGT). Any increase in CGT rates would have a detrimental impact on employees already participating in their employer’s tax advantaged share incentive plans, such as enterprise management incentives (EMI), company share option plans (CSOP) and share incentive plans (SIP). A CGT increase may also impact future participation rates in plans offered by employers.

Employment rights

A key focus of the Labour manifesto is ‘making work pay’. This includes plans to introduce new legislation within 100 days to deliver a new deal for working people, banning zero-hour contracts, and introducing employee rights from day one of employment, covering issues such as parental leave, sick pay and protection from unfair dismissal. 

To improve compliance with employee rights, Labour has also pledged to create the long mooted ‘Single Enforcement Body’ to ensure these are upheld. Full details have not yet been provided, but they are likely to result in more interventions for employers around compliance in relation to issues such as National Minimum Wage (NMW) and holiday pay compliance.

National Minimum Wage/National Living Wage

The Labour manifesto includes specific commitments to ensure that the minimum wage is a genuine living wage by changing the remit of the independent Low Pay Commission to take account of the cost-of-living. 

Labour also proposes to remove the NMW age bands, so all adults are entitled to the same minimum wage. Currently a lower rate of £8.60 applies to employees aged 18-20, which rises to a rate of £11.44 for those aged 21 and over. This will result in an immediate pay rise for thousands of young people, with a significant increase in costs for many employers. 

Apprenticeship Levy changes

Labour has also stated that it will reform the current Apprenticeship Levy with the creation of a flexible Growth and Skills Levy. Currently, the Apprenticeship Levy results in a charge of 0.5% of an employers’ pay bill through PAYE, but only for employers with a pay bill in excess of £3m. Details of how the new Growth and Skills Levy will work, and at what rate, are yet to be published. 

Aside from some headline policies around the abolition of the special tax regime for non-domiciled individuals (non-doms) and VAT on private school fees, individuals have had little detail to consider in respect of potential changes to taxation under the new Labour government.

Labour has committed to not increasing the rates of income tax or National Insurance contributions and also to providing greater certainty to business taxpayers. Setting out its intended direction of travel at an early stage for personal tax policy would also be welcome as would a commitment to simplifying the tax legislation applying to those with straightforward tax affairs. 

International

Labour has pledged to abolish the current non-dom tax status for certain individuals and replace it with an alternative system that would ensure that all long-term UK residents are taxed in the same way. There is still an intention for genuine short-term residents to be taxed in a different way so that they are not adversely impacted by coming to the UK. This will need to address the potential for a cliff-edge in terms of the amount of tax internationally mobile individuals could face if they stay too long. There is also a concern that rules that are too draconian could dissuade overseas individuals from relocating to the UK at all.

As for equalising the treatment of UK domiciled and non-domiciled individuals, the use of offshore trusts to avoid UK inheritance tax (IHT) on non-UK assets will end. An additional 1% will be added to the headline rate of stamp duty land tax for residential property purchases by non-UK residents.

Capital taxes

Although the subject of much discussion in the press and despite calls by some to align capital gains tax (CGT) rates with income tax rates, there were no significant announcements regarding capital taxes in Labour’s pre-election communications, other than to confirm it would retain the exemption from CGT on the disposal of an individual’s main residence.

The only announcement that may signal a move towards alignment is the intention to change the current CGT tax treatment of ‘carried interest’, which recognises the performance of fund managers, to bring this under the charge to income tax.

There were several reviews and reports into CGT and IHT during the last parliament, but there have been no structural changes to these taxes. Given the issues addressed in these reports, it seems likely that the new government will dust off these reports and there will be a top-down review of capital taxes, with the potential for reform in this area.

VAT on school fees

The Labour Party has made it clear that it will apply VAT to private school fees as soon as possible after taking power, meaning that it is expected to become more expensive to send children to an independent school. So far, Labour has not confirmed exactly how, when or at what rate VAT will be applied, or whether arrangements to prepay future school fees on a date before VAT is applied will be blocked. Full details are set to be announced in its first budget, likely to be held this autumn. However, statements during the General Election campaign suggest that this change will come into force next year, possibly as late as the start of the new academic year in September 2025.

Matters outstanding from Budget 2024

There continues to be uncertainty around furnished holiday lets. Labour has not commented on the changes set out in the last Conservative budget, which proposed to remove the tax advantages of such property business activities from April 2025. It is unclear whether Labour will legislate the existing proposals or reconsider the position.