Today's release of Labour's 2019 Election Manifesto shows that in order to fund a number of core party initiatives, Labour Party Chancellor John McDonnell has detailed numerous tax changes.
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Changes to tax impact income tax, dividends, capital gains, corporation tax as well as multiple new taxes and loophole closures aimed at very large companies and wealthy individuals.
Income tax will be restructured to target higher earners. From what was detailed in the manifesto, the following is what we know:
| Band | Rate |
|---|---|
| £0 to £50,000 | 20 percent |
| £50,001 to £80,000 | 40 percent |
| £80,001 to £125,000 | 45 percent |
| above £125,000 | 50 percent |
So a new band of tax slotted in between higher rate and top rate. The top rate brought forward by £25,000 and the rate increased too. No changes were listed for National Insurance.
Dividends and Capital Gains will no longer be separately classed and thus be taxed within the same band structure as regular income from employment. They will both however receive a £1,000 tax-free amount of their own. This is in contrast to the current tax regime where both have far lower rates as well as tax-free amounts, albeit far reduced in the case of dividends in recent years.
Corporation tax is another tax that will be heading up. This time to 26 percent by 2022. Labour will re-introduce the small companies rate for companies turning over less than £300,000 at 21 percent by 2022. Companies with turnover above the £300,000 but less than £1.5M will pay a marginal rate. Here is the breakdown:
| Tax Year | Company Type | Rate |
|---|---|---|
| 2020-2021 | Small | 19 percent |
| 2020-2021 | Large | 21 percent |
| 2021-2022 | Small | 20 percent |
| 2021-2022 | Large | 24 percent |
| 2022-2023 | Small | 21 percent |
| 2022-2023 | Large | 26 percent |
The combination of the increase to corporation tax and removal of preferential rates for dividends will have major effects on those who take dividends from companies as a tax-efficient way of withdrawing profits. We have constructed a comparison calculator to help illustrate this.