Tax and the General Election

The recent announcement of a 4 July General Election came as a surprise to me as it did to most of the country. 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 two main sides’ tax pledges?

Many of the Conservatives’ tax aspirations were announced in March’s budget such as the curtailing of the Non-Domiciled tax regime, and the end of the tax favourable status of furnished holiday let property. 

Thus far, the main election tax pledge has been for pensioners who have been vocal in their complaints about being unfavourably treated by the concept referred to as “fiscal drag”.

The proposals unveiled recently will decouple pensioners from the frozen personal allowances regime and will instead increase annual allowances in line with the highest of earnings or inflation or at least 2.5 per cent.

Shadow Chancellor, Rachel Reeves has been more forthcoming with Labour’s plans. In April, Labour published their plan to “Close the Tax Gap.”

This report ultimately promises to invest £555 million per year in HMRC resources both personal and digital and expects this to raise £5 billion per year in additional taxes by the end of the parliament. This figure was also quoted by Home Secretary James Cleverly in his rounds of media interviews over the weekend.

In addition, Labour has stated that they will:

  • Make private school fees subject to standard-rated VAT
  • Go further than the Conservatives have with their plans to curtail the Non-Dom regime
  • Look to bring in laws to curb the carried interest “bonus” that private equity funds use to pay CGT rather than income tax
  • Bring in a windfall tax on oil and gas companies.

When interviewed by Sam Coates of Sky News, Rachel Reeves confirmed that they have no plans to increase income tax, national insurance and corporation tax.

With such a lead in the polls, it is Labour’s plans that require further comment.

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 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 will rely on HMRC effectively deploying these additional resources. It will need carefully thought, through extensions to existing powers to curb the worst examples of tax avoidance. It will mean opening more enquiries which are carefully targeting areas where additional taxes are due. 

The problem with both of these matters is that HMRC’s 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.

Posted in Internal.