General Election 2024: Parties' Pledges for Small Businesses and Taxes

The 2024 UK general election, scheduled for 4 July 2024, is approaching. As voters prepare to decide the country's future direction, understanding each major party's point of view on key issues is crucial.

In their recently released manifestos, the major political parties have outlined their plans for governing if they win. These documents detail their proposed solutions to various challenges facing the nation, including how they intend to support small businesses.

Small businesses are vital to the UK economy, employing many people and playing a significant role in local communities. Despite their importance, these enterprises often face unique challenges that require tailored policy solutions.

In this article, we analyse what each party promises for small businesses and taxes. Each manifesto offers a distinct approach to fostering growth and supporting entrepreneurship, from tax policies to regulatory changes. By exploring these commitments, voters can better understand how each party plans to address the needs of small business owners across the country.

Stay informed as we break down the promises that could shape the future landscape for small businesses and taxes in the UK. This election is not just about choosing leaders; it's about deciding which vision for small business and tax support aligns best with your priorities.

1. Tax Policy for Small Businesses:

• Labour pledges to maintain stability in the tax regime to support long-term business planning.
• To provide certainty, they will cap corporation tax at the current rate of 25% throughout the parliament, which is the lowest among G7 countries.
• Permanent full expensing for capital investment and annual investment allowance for small businesses will be retained to encourage business investment decisions.
• There will be clarity on what qualifies for tax allowances to improve business confidence in investments.

2. Support for Small Businesses:

• Labour aims to reform the business rates system in England to create a fairer system that encourages investment and supports entrepreneurship.
• They will take action on late payments to ensure small businesses and the self-employed are paid promptly.
• Reform of the British Business Bank will make it easier for small and medium enterprises (SMEs) to access capital, with a focus on growth in different regions and nations.
• Procurement rules will be reformed to give small businesses better access to government contracts, promoting their growth and sustainability.

3. Entrepreneurship and Startups:

• Labour plans to work with universities and industries to support spinouts and ensure startups have adequate access to finance for growth.
• The procurement process will be simplified to support innovation, reduce micromanagement, and adopt a mission-driven approach.
• They support the implementation of OECD's global minimum corporate taxation rate to ensure multinational tech companies pay their fair share of taxes, which could create a more level playing field for small businesses.

4. Taxes:

• Labour will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.

5. Pension:

• Labour will retain the triple lock for the state pension.

6. National Living Wage:

• Labour will remove the discriminatory age bands so all adults are entitled to the same minimum wage, delivering a pay rise to hundreds of thousands of workers across the UK.

7. Tax Avoidance:

• Investment of £855M in HMRC to reduce tax avoidance

Responding to Labour’s plan for small business, Tina McKenzie, Policy Chair at the Federation of Small Businesses (FSB), said:

“It is good to see late payment addressed by Labour today – all eyes will now turn towards its manifesto launch to see if the party takes a pro-small business approach.

“As questions swirl around tax in this election, the UK’s 5.5 million entrepreneurs – who generate the jobs and growth that should be at the core of Labour's mission - will want to hear more reassurance from the party on the huge taxes small firms already pay at every stage of running their businesses.”

1. Small Businesses

• Provide a £4.3 billion support package for business rates over five years.
• Simplify hiring apprentices for small businesses.
• Exempted 28,000 small businesses from VAT by increasing the VAT registration threshold to £90,000, 
• Introduce a ten-point plan to support SMEs, including easing business rates and improving finance access.

2. Taxes

• Promise not to raise corporation tax.
• Maintain tax incentives for small businesses and do not increase capital gains tax.
• Maintain National Insurance and income tax rates without increases.

3. National Insurance

• Abolish the main rate of National Insurance for the self-employed by the end of the next Parliament.
• Cut employee National Insurance from 12% to 6% by April 2027.
• Aim to eventually scrap National Insurance "when financial conditions allow” as part of a simpler tax system.

4. VAT

• Review the VAT threshold to smooth the impact at the £90,000 mark.
• Exempt more small businesses from VAT by raising the registration threshold.

5. Child Benefits

• Change Child Benefit to a household-based system, starting reduction at a combined income of £120,000, benefiting 700,000 households.

6. Pension

• Guarantee State Pension and tax-free allowance increases with the highest of inflation, earnings, or 2.5%.
• Introduce an age-related personal allowance for pensioners from April 2025.
• Maintain pensioner benefits like free bus passes, Winter Fuel Payments, and TV licences.

7. R&D Tax Reliefs

• Maintain and simplify R&D tax reliefs, adding £280 million per year and bringing more SMEs into scope.

8. Self-Employed

• Simplify the tax system by eliminating Class 4 National Insurance contributions.

9. National Living Wage

• Raise the National Living Wage to two-thirds of median earnings, forecasted to be around £13 per hour.

10. Tax Avoidance

• Raise at least £6 billion annually by tackling tax avoidance and evasion.

11. Capital Gains Tax

• Introduce a two-year temporary Capital Gains Tax relief for landlords who sell to existing tenants.

12. Entrepreneurship and Startup Grants

• Support risk-takers and entrepreneurs driving the economy.
• Promote digital invoicing and enforce the Prompt Payment Code to aid cash flow.
• Encourage more female and disabled entrepreneurs with targeted programs and funds.
• Create a £250 million Invest In Women Fund for female entrepreneurs.

Responding to the launch of the Conservative Party’s General Election manifesto, Policy Chair of the Federation of Small Businesses (FSB), Tina McKenzie, said:

“Small firms will be pleased to see the Conservative pledge not to raise capital gains tax and protect small businesses with entrepreneurs' business asset disposal relief. For many small firms their business is also their pension and it's right not to tax people all over again when they come to sell.

On taxes, Sam Robinson, Senior Researcher at SMF, said:

“Cutting National Insurance is a laudable step from a tax design perspective – but only if it leads to a merger with income tax, ensuring that workers are not disadvantaged. Unfortunately, this cut to NICs is not part of a considered reform agenda but funded by magical thinking about the scope for efficiencies in welfare reform. And cutting self-employed NICs by more than employee NICs is a strange decision that will worsen the tax bias against employment.

Dave Chaplin, CEO of contracting authority said that the lack of firsthand experience may go some way to explaining why the Conservatives enacted the most damaging policies to small business and the self-employed in a decade in the shape of the off-payroll working rules – simply because they were out of touch.

1. Small Businesses

• Abolish business rates for high street-based SMEs.
• Offset abolished business rates with a 4% Online Delivery Tax on large multinational enterprises.
• Provide tax relief for businesses that undertake apprenticeships.
• Free over 1.2 million small and medium-sized businesses from corporation tax by lifting the minimum profit threshold to £100k.

2. Taxes

• Reduce the main corporation tax rate from 25% to 20% and 15% from Year 3.
• Reduce entrepreneur's relief tax from 10% to 5%.
• Raise the income tax starting threshold to £20,000, saving every worker almost £1,500 yearly.
• Keep the basic tax rate at 20% and start the higher rate at £70,000.

3. National Insurance

• Raise the National Insurance rate to 20% for foreign workers, except essential health and care workers and businesses with 5 or fewer employees.
• Keep the National Insurance rate at 13.8% for British citizens.

4. VAT

• Lift the VAT threshold to £150,000 to free small entrepreneurs from red tape.

5. IR35

• Abolish IR35 rules to support sole traders, acknowledging their longer hours and higher risks.

6. Corporation Tax

• Free over 1.2 million SMEs from corporation tax by raising the profit threshold to £100,000.
• Gradually reduce the main corporation tax rate to 15% by the third year.

7. Child Benefits

• Front-load the child benefit system for children aged 1-4 to allow parents more time with their children.

8. Self-Employed

• Abolish IR35 rules to support sole traders.
• Lift the income tax starting threshold to £20,000, benefiting self-employed individuals.

9. Entrepreneurship and Startup Grants

• Cut entrepreneurs' tax to 5%.
• Provide tax relief for businesses undertaking apprenticeships.

10. Additional Measures

• Abolish inheritance tax for estates under £2 million and impose a 20% tax rate for estates above £2 million with an option to donate to charity instead.
• Support marriage through the tax system by introducing a 25% transferable marriage tax allowance when finances allow.

Carl Emmerson, deputy director at the Institute for Fiscal Studies, said: “A reduction in tax of £90 billion a year, while sizeable, would still see tax revenues higher as a share of the economy than in 2019–20. But in reality the package of tax cuts proposed would, if and when fully implemented, cost tens of billions of pounds a year more than that. For example, Reform UK plans to cut the rate of corporation tax from 25% to 20% immediately, and then to 15% in year 3 of the parliament. The manifesto costing of £18 billion a year over the course of the next parliament for all its business tax cuts is less than half of what official estimates suggest the long-run cost of just this cut in the corporation tax rate to 15% would be.

1. Small Businesses

• Increase the Employment Allowance to £10,000 to help small businesses offset the cost of a £15 minimum wage.
• Provide regional mutual banks to support investment in SMEs and community-owned enterprises.
• Enforce the Prompt Payment Code and mandate the Small Business Commissioner to investigate payment issues proactively.

2. Taxes

• Ensure fair taxation on all income, taxing wealth and investment income at the same rate as earned income.
• No increases in the basic rate of income tax during the cost-of-living crisis.
• Introduce a wealth tax: 1% on assets above £10 million and 2% on assets above £1 billion.
• Reform capital gains tax to align it with income tax rates.
• Remove the Upper Earnings Limit for National Insurance so high earners pay more.
• Reform inheritance tax for fairer intergenerational wealth transfer.
• Aim to raise to £40bn in business taxes over five years.

3. National Insurance

• Ensure high earners pay the same National Insurance rate as everyone else.
• Remove the Upper Earnings Limit to make high earners pay more.

4. VAT

• Increase VAT on financial services and private education.

5. Child Benefits

• Provide child benefits to all children in a family.

6. Pension

• Ensure pensions are always uprated in line with inflation and wage rises.

7. National Living Wage

• Introduce a minimum wage of £15 an hour for all ages.

8. Tax Avoidance

• Strengthen global tax agreements to stop corporate tax avoidance and evasion.
• Ensure HMRC has the resources to close the gap between taxes due and taxes paid.
• Reform tax rates on investment income to align with employment income, preventing tax avoidance.

9. Capital Gains Tax

• Align capital gains tax rates with income tax rates.

10. Entrepreneurship and Startup Grants

• Support investment in SMEs and community-owned enterprises through regional mutual banks.

11. Additional Measures

• Increase Universal Credit by £40.
• Commit to fair taxation on wealth and investment income.

Rachael Griffin, tax and financial planning expert at Quilter, said the Greens' plans to introduce a “wealth tax” of 1 per cent annually on assets above £10mn and of 2 per cent on assets above £1bn might be popular amongst some.

“This could have significant repercussions, reducing investment incentives and potentially slowing economic growth. Similar to IHT, the prospect of being taxed twice is difficult to stomach for lots of people and there are always worries that a wealth tax is eventually levied on those with fewer assets if the economic climate dictates a higher tax take. 

The Green Party proposed a plan to provide pension tax relief at a flat rate of 20%, instead of the current system where tax relief corresponds to the individual's income tax rate. Tom Selby, director of public policy at AJ Bell responds to it

“If the Greens’ idea was implemented, younger workers, who are less likely to be higher rate taxpayers today, would not have the opportunity to benefit from higher rate relief in the future. This proposal would therefore effectively be a twin attack on the public sector and younger pension savers.”

1. Small Businesses

• Abolish business rates and replace them with a Commercial Landowner Levy to support high streets.
• Address barriers to finance for small businesses.
• Work with major banks to create a local banking sector dedicated to small and medium-sized businesses.
• Promote creative skills and support modern patent, copyright, and licensing rules.

2. Taxes

• Prioritise tax cuts by raising the tax-free personal allowance, benefiting most families and removing low-paid workers from income tax.
• End retrospective tax changes, such as the loan charge, freeing an estimated 40,000 freelancers from retrospective tax bills
• Work internationally to tackle corporate tax avoidance and increase the global minimum corporation tax rate to 21%.
• Fairly reform capital gains tax to close loopholes exploited by the wealthy.

3. National Insurance

• Review the tax and National Insurance status of employees, dependent contractors, and freelancers for fair treatment.

4. VAT

• There is no specific mention of VAT changes.

5. IR35

• Review the government's off-payroll working IR35 reforms to ensure fair treatment for self-employed people.

6. Corporation Tax

• Work internationally to increase the global minimum corporation tax rate to 21%.

7. Child Benefits

• Introduce a "Toddler Top-Up," an enhanced rate of Child Benefit for one-year-olds.
• Ensure flexible, affordable, and fair childcare by reviewing provider rates for free hours to cover actual costs.

8. Pension

• Protect the triple lock, ensuring pensions rise with inflation, wages, or 2.5%, whichever is highest.

9. R&D Tax Reliefs

• No specific mention of R&D tax reliefs.

10. Self-Employed

• Establish a new "dependent contractor" status with entitlements to minimum earnings, sick pay, and holiday entitlement.
• Review tax and National Insurance status for fair treatment.

11. National Living Wage

• Establish an independent review for a genuine living wage across all sectors.
• Set a 20% higher minimum wage for people on zero-hour contracts during normal demand times.

12. Tax Avoidance

• Give HMRC resources to tackle tax avoidance and evasion.
• Collaborate internationally to tackle corporate tax avoidance.

13. Capital Gains Tax

• Fairly reform capital gains tax to close loopholes exploited by the wealthy.

14. Entrepreneurship and Startup Grants

• Reform business rates to help high streets.

15. Additional Measures

• Increase the number of apprenticeships by ensuring all apprentices are paid at least the National Minimum Wage, eliminating the lower apprentice rate.
• Create an independent review to determine a genuine living wage for all sectors. Government departments and other public sector employers will lead by example in paying this living wage. 

 IR35 Shield founder and CEO, Dave Chaplin responded to the IR35 policy:

“The commitment to a review of the off-payroll working reforms is certainly welcome, as is the focus on ensuring the self-employed are being treated fairly.

“The IR35 reforms are proving to be a disaster and the 25-year-old HMRC idea of ‘deemed employment’ which simply does not work.

 International Consortium of British Pensioners board member, Edwina Melville-Gray, stated on the pension plan that she was “deeply disappointed” by the manifesto.

She specified that the omission of ending ‘“frozen” pensions and the longstanding “injustice” dealt to Brits living overseas.

“Despite this party’s previous support on this issue, we are faced once again with empty promises and a political party unwilling to stand up for this key, yet further forgotten, group,” she added.

This guide is not intended to provide political advice or to influence anyone's decisions or votes. Its purpose is solely to offer information on the potential effects of political mandates that have been issued. We aim to present details impartially and factually without advocating for any particular position or outcome. GoForma remains impartial to any political party and holds no political view.

Each party has different approaches to supporting small businesses and addressing tax policies. Voters have a range of choices depending on their priorities for the economy and fairness in the tax system. As we head to the polls, let’s carefully consider these pledges and choose the path that best aligns with our values and aspirations. May the best party win!