Something that was of little value before the General Election is now necessary. That is to look at what the governing political party has said in its Manifesto regarding issues that affect our profession.
In the start of a series of articles leading up to the Queen’s Speech on 19 December 2019, I want to look at what the Conservative Party has pledged regarding Income Tax. This information is from their 64-page Manifesto ‘Get Brexit Done, Unleash Britain’s Potential’. Given that the Conservative Party have a majority in the House of Commons, this seems to be relevant at this time.
In the first instance, it is necessary to say that some of the pledges in the Manifesto appear to relate to Income Tax as it applies UK-wide. This is not correct as a result of the partial devolution (sharing) of Income Tax powers with:
- The Scottish Government (known as Scottish Income Tax) and
- The Welsh Government (known as the Welsh Rates of Income Tax)
In both cases, the devolved administrations are responsible for setting their own tax rates for applicable taxpayers.
It is true to say that both Governments may look at what the UK Government does in respect of Income Tax. However, at the end of the day, the devolved administrations can do what they like regarding tax rates (in vastly different ways).
Secondly, I believe that it is relevant to point out the two tax issues that are in legislation at the moment – i.e. the new Government does not have to do anything to legislate to make these things happen. Both are courtesy of legislation in the Finance Act 2019 that updated the Income Tax Act 2007:
- The Personal Allowance for 2020/21 will be unchanged at £12,500
- The Basic Rate limit for 2020/21 will be unchanged at £37,500
The effect of the above is that Income Tax at 40% will not be payable until net taxable income reaches £50,000 (i.e. £12,500 + £37,500). The Upper Earnings Limit for National Insurance Contributions (NICs) is aligned to the point at which an individual starts to pay tax at 40%.
Whether or not there will change in 2020 is anyone’s guess and it would not be unheard of for a Government to change its mind!
I detail the pledges (the formal promises) that the Conservatives made in their 2019 Manifesto:
- ‘We will not raise the rate of income tax, VAT or National Insurance’. This is referred to as a ‘tax guarantee’ and will apply for the length of the Parliamentary session. As stated above, with regard to Income Tax, this must only be a promise to Rest of the UK Taxpayers (rUK), as Scotland and Wales can set rates different from those that apply to rUK Taxpayers
- ‘We want to create…a high-wage, high-skill, low-tax economy’. In fairness, this does not say that this applies to Income Tax, though the Prime Minister has spoken of his wish to increase the threshold at which 40% tax becomes payable
- ‘Within our first 30 days’ the new Government have pledged to hold a review of the Tapered Annual Allowance – the Annual Allowance that reduces in a complicated way once earnings reach a certain level. This review will apply UK-wide but will apply to pension contributions for ‘doctors’ only
- ‘We will use our freedom from the EU to improve the UK’s tax regime’. It is unclear if this promise applies to Income Tax
- ‘And we will continue our efforts through the tax and benefits system to reduce poverty, including child poverty’. Again, it is unclear if this promise applies to Income Tax
- Regarding supporting the self-employed, there is a pledge towards ‘making the tax system easier to navigate’
- The UK Government will continue to ‘tackle tax evasion and reduce opportunities for aggressive tax avoidance’. As a result, a ‘single, beefed-up Tax Evasion unit’ will be created at HMRC. I think that this is one to watch for given the mention of ‘anti-evasion and avoidance’ and ‘tax abuse in the construction sector’
Professionally, the nicest Christmas present for me would be to fast forward and announce the date for the next Budget, crucial for certainty at the start of tax year 2020/21. A date in February has been widely predicted after the UK Government achieves it priority to ‘get Brexit done’.