As the general election on 4 July looms quickly, the major political parties in the UK have outlined their tax policies, which will play a pivotal role in shaping the country’s economic landscape.

Putting the politics to one side, what does the election mean in terms of tax? It is clearly early days in the campaigning. What are the main sides’ tax pledges?

Conservative tax proposals: Supporting families and promoting business growth

To some degree, going into this election we had a clearer view of the Conservative Party’s direction of travel, thanks to their recent Spring Budget.

However, with the launch of their manifesto, the Conservatives have set forth their tax vision, focusing on relieving burdens on families and businesses:

• Reduction in employees’ national insurance: A further phased two per cent cut aimed at increasing take-home pay.
• Non-dom tax reform: This change was already announced in the Budget but has been reaffirmed in the manifesto.
• Changes to high-income child benefit tax charge: Adjusting thresholds to lessen the tax burden on families.
• Increase in vat registration threshold: Encouraging small business growth by reducing the VAT compliance burden.
• Rising personal allowances for pensioners: Part of the new triple lock plus this measure will ensure that pensioner income keeps pace with inflation or earnings.
• Stamp duty land tax exemption for first-time buyers: Making homeownership more accessible to new entrants in the housing market.

Labour’s Tax strategy: Focused on fairness and closing loopholes

With a strong position in the polls (at least at the time of writing) many eyes are on the Labour Party’s policy proposals and what they may mean for taxpayers. Within their manifesto and recent appearances Labour has introduced a robust tax agenda aimed at reforming several aspects:

• VAT on private school fees: Aiming to level the playing field in education funding.
• Closing the carried interest loophole: Targeting hedge funds and private equity managers who pay tax at lower rates than ordinary income.
• Non-dom tax reform: Strengthening tax requirements for non-domiciled residents to ensure they pay their fair share. However, unlike the Conservative’s own approach, they will do away with a transition period.
• Windfall Tax on Energy Profits: Capitalising on extraordinary energy sector profits to fund public services, including their new green energy investment vehicle, GB Energy.
• Closing the tax gap: Investing in HMRC to tighten tax compliance and enforcement.
• Capping Corporation Tax at 25 per cent: Committing to no increases in corporation tax for this parliament to maintain business investment.
• Stable personal tax rates: Promising no increases in income tax, national insurance, or VAT rates.
• Publishing a business tax roadmap: Providing a clear, forward-looking plan to support business planning and growth.

Liberal Democrat Focus: Increasing Tax on digital services and capital gains

 The Liberal Democrats have historically been seen as the third main party (although current polls suggest they are further behind the likes of Reform UK). They are emphasising taxation fairness through several key proposals:

• Increase in digital services tax: Targeting tech giants to pay a fairer share.
• Restoring the bank surcharge: Increasing taxation on banking profits to fund public services.
• Ending retrospective tax changes: Such as the loan charge, to provide tax certainty and fairness.
• Increasing Capital Gains Tax: Aligning it more closely with income tax rates and restoring indexation allowances to account for inflation.

Can these policies be delivered?

A lot of the current policies rely on HM Revenue & Customs’ (HMRC’s) support, but as a profession, we have been struggling to deal with HMRC since the pandemic.

Staffing levels and deployment away from many of the customer-facing roles have meant that we have seen substantial delays in HMRC’s responses to correspondence and the processing of tax refunds.

This has been hugely frustrating for taxpayers and tax professionals alike. So, I welcome increased investment in HMRC that all parties have pledged which is, in my view, long overdue.

I am more sceptical about how HMRC will go about turning the investment into additional tax receipts.

Closing the tax gap as Labour and others suggest will rely on HMRC effectively deploying these additional resources.

It will need careful thought, through extensions to existing powers to curb the worst examples of tax avoidance. It will mean opening more enquiries which are carefully targeted at areas where additional taxes are due.

The problem with both matters is that HMRC’s own statistics suggest that over half of the tax gap of £36 billion is caused by small businesses.

Whilst it is politically convenient to blame the wealthy and large businesses, they account for less than a third of the amount of the gap attributed to small businesses.

To collect a significant amount of this tax means lots of enquiries, which need to be conducted in a far swifter fashion. Are HMRC up for this fight and are they capable of targeting their energy effectively? To my mind, that is the biggest challenge to a future government.

Preparing for change

With the possibility of a change in government, these tax policies represent significant shifts in how businesses, individuals, and families could be taxed in the future. Understanding these proposals is crucial for planning and compliance.

For personalised advice and to understand how these potential changes could affect your financial planning, please contact us for a detailed consultation.

As we navigate these proposals, our team is ready to assist you in preparing for the upcoming changes in the tax landscape.