By John Endacott – Head of Tax
For most UK businesses 2019 has been a year of frustration. It has been spent hoping for clarity on the future direction of the economy, without it being achieved. Most business owners are fed up with the ongoing uncertainty and disagreements between politicians.
Ever since Theresa May lost her majority in June 2017, it has become pretty apparent that the British people were going to be asked to vote again – either in a referendum or an election. This has resulted in the forthcoming general election taking place on 12 December. However, it is still not clear whether this will resolve the ongoing impasse. The election outcome itself is uncertain and another hung parliament seems highly possible, in which case, will we be any further forward?
Additionally if Sajid Javid doesn’t retain his job after the election then we will have had four Chancellors in less than four years, which does nothing to help achieve consistent tax policy.
Depending on the election result some very different outcomes for the country are possible, from the idea that the British economy could become a low tax, low regulation economy as a ‘Singapore on Thames’ at one extreme, to a socialist nirvana at the other. No doubt reality will fall somewhere in between but there does appear to be a desire across all parties for government spending to increase after a long period of cuts and spending restrictions. Therefore it seems quite likely that taxes will increase.
Whilst we have had an Autumn Budget cycle for a few years, the next Budget must surely be in early 2020. Quite when and the likely measures it contains will depend on whether we have a change in government, Brexit and who the Chancellor is. Any tax changes are likely to be effective from the next Budget, or 6 April 2020. However, for those considering actions then one might as well focus on 12 December.
With all of that in mind, some actions that clients might wish to consider are:
- Accelerating the payment of bonuses to before 12 December;
- Accelerating the payment of dividends to before 12 December;
- Crystallising capital gains prior to 12 December to take advantage of current tax rates;
- Where possible, accelerating pension contributions in case tax on pension contributions is further restricted and taking pension benefits in case tax free cash is restricted;
- Taking into consideration possible restrictions on entrepreneurs’ relief and inheritance tax reliefs, or increases in those tax rates; and
- Accelerating succession planning and the making of gifts to children or into trust for fear that taxation on lifetime gifts will become more onerous.
One thing is certain, waiting for the outcome of the election is likely to mean there isn’t enough time to plan restructuring so the process needs to start now. It is also important to remain mindful of sensationalised headlines as the campaigning ramps up, so take professional advice and don’t panic into rash actions.
Finally, there is the issue of Brexit. Short of a working majority for a Johnson government, then it is hard to see a Withdrawal Agreement Bill (WAB) being passed by 31 January. There is of course a question as to what ‘getting Brexit done’ actually means, when this stage is only the start of the process of agreeing a future relationship with the EU. Whether or not the WAB is passed, the likelihood is that Brexit uncertainty drags on during 2020, and our membership of the European Union on existing terms continues until at least 31 December 2020. In either case, the uncertainty will mean businesses will still not know the basis on which their trade with the EU will be conducted from 2021 onwards.
Whatever outcome you might like to see as a result of the General Election on 12 December, it would be good for everyone if we could get some resolution to the current log jam and be able to see a clear direction for the country for the future.
In the meantime it is important that you consider your tax position as it stands and decide whether there are actions that could help to mitigate future changes by the Government. At PKF Francis Clark we are always here to help and if you would like to discuss things further please get in touch with your usual client contact or tax partners John Endacott, Daniel Sladen or Holly Bedford.