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What do accounting professionals expect from the new government?
Words Helena Vallely Illustrations Jackie Parsons / Getty
How will the tax policies of the new government affect accounting technicians in their roles?
Labour’s election win, bringing the party to power for the first time in 14 years, is a seismic event that will have ramifications for businesses across the country. Accounting professionals now have the substantial task of familiarising themselves with the new government’s tax policies, and their direct or indirect effects on businesses and clients.
Historically, Labour has denounced the Conservative Party’s pattern of periodically raising taxes while making sure, in its view, that the wealthy are left largely unaffected. In its manifesto, Labour blamed the Tories’ “miserable” economic record while in power for “productivity and wages flatlining”. The manifesto also called out the Conservatives for inconsistency, going on to note that corporation tax changed 26 times while the party was in office.
In contrast, the new government promises to “turn the page with a strategic approach that gives certainty and allows long-term planning”. Businesses would be forgiven, therefore, for expecting to see reforms aiming to address economic inequality, boost public services and enhance corporate accountability.
We spoke to accountants about what they expect the main changes to tax policy will be from Sir Keir Starmer’s government, and how accounting technicians can best prepare for them.
The new government has kept the door open for changes to capital gains tax, inheritance tax and pension tax relief.
Emma Bowles, tax partner, Jackson Stephen
Taxation changes will require planning reviews
In June, a press release from the new government was headlined: “Labour will not raise taxes on working people.” This refers to its pledge not to increase income tax, national insurance or VAT.
For Emma Bowles, tax partner at Jackson Stephen (JS), Labour’s manifesto “emphasises fairness in the tax system”. While the party has promised not to increase these named taxes, Bowles says that the new government has “kept the door open” for changes to capital gains tax (CGT), inheritance tax and pension tax relief. Although she says these are not specifically wealth taxes, Bowles feels that the changes “are likely to impact the wealthy most”.
Labour has long promised to remove tax breaks for private schools, and it was one of its first announcements once in power. In the King’s Speech on 17 July, Charles III announced an end to the business rates exemption for private schools, in order to fund 6,500 extra teachers for state schools. Bowles notes that her practice is seeing schools and individuals starting to look at routes to tackle an impending increase in school fees resulting from the announcements.
To prepare for the changes, Bowles says accounting professionals should carefully review any financial planning opportunities. They will need to assess forecasts and budgets to account for higher operating costs due to increased business rates or other taxes, and may advise clients to adjust their plans to accommodate any additional expense.
Image: Jackie Parsons / Getty
Stability required in R&D tax reliefs
Labour’s plan for growth published in February 2024 set out pledges to stabilise research and development (R&D) tax credits, put in place 10-year R&D budgets (starting with the life sciences sector), and implement a new Regulatory Innovation Office.
For Sara Brigden, managing director at ForrestBrown, years of change and uncertainty under the last government has undermined confidence in the R&D tax relief scheme. Now, she says, businesses need stability to plan R&D investment for the long term. To encourage private sector innovation and make the UK an attractive place for inward investment, she says the government “should start by setting ambitious targets for R&D investment, backed up by a renewed commitment to R&D tax incentives”.
At time of writing, the Labour government hasn’t yet made any update on its plans for R&D tax relief. However, Brigden calls for Labour to make “a statement of intent for R&D tax incentives” to provide greater clarity for businesses when considering whether to claim. She says this should help to reduce the error and fraud that have been a focus for HMRC in recent years.
“With the right framework in place, business innovation can play a vital role in achieving the government’s aim to kick-start economic growth,” she adds.
Wage and pension inequality to be addressed
Labour has committed to extending the National Living Wage to workers aged 18-20, as well as ensuring it is a “genuine living wage”. The party also plans to review and reform the pensions landscape. In July, it announced the promotion of scheme consolidation and better investments, aiming to boost pension pots for savers by £11,000.
Bowles welcomes these announcements, saying she expects them to improve levels of taxation of working people, as well as overall living standards. However, there is work to do for accounting technicians to be prepared.
Accounting professionals will need to ensure that businesses are compliant with all new wage and pension regulations, including higher minimum wages and living wage mandates. They will also need to ensure that payroll systems are up to date, and make sure the business is kept informed about the changes. Keeping management teams in the loop will be crucial, including updates on any financial impact they may feel.
Potential for capital gains changes
A realignment of CGT with income tax is rumoured to be under consideration by the new Labour government. Steph Gemson, director at TaxGem, says this would represent a significant shift in the UK’s tax landscape.
CGT rates are currently significantly lower than income tax rates, ranging between 10% and 28%. Gemson says: “With an income tax top rate of 45%, we can see why some argue that there is a disparity that should be addressed.”
Gemson says that if Labour proceeds with this change, we could see investment behaviour impacted. Investors and business owners might reconsider their strategies, potentially leading to a reduction in the number of transactions involving capital assets like property and shares. She adds that it “could also have a chilling effect on the entrepreneurial spirit, particularly among those who rely on the current CGT regime to make their ventures financially viable”.
While this change could generate additional revenue for the government, Gemson says it must be introduced carefully to avoid stifling economic growth or unduly penalising those who have invested in businesses, property or other assets. A balanced approach, possibly including the reintroduction of taper relief or allowances for long-term investments, could help mitigate some of these concerns.
There have been a few announcements since the new government’s election in early July, but it is likely that we’ll need to wait until the Budget in September or October to get a more comprehensive update from chancellor Rachel Reeves on the government’s plans.
The current uncertainty over what may or may not be implemented, therefore, means that accounting professionals can see now as a period of planning and ensuring clients are up to date and compliant with existing regulations. Gemson sums up: “At this stage, ensuring we are ready to spring into action for our clients… is the most prepared we can be.”
So far, however, the landscape for Labour’s tax changes is looking positive for businesses, who should start to see benefits from the new government’s focus on creating a fairer economic environment. Plans for less volatility in tax – corporation tax, in particular – should also make planning simpler for accounting professionals over the long term.
