Will corporation tax rates rise under Labour?

Responding to the publication of the Labour Party’s business manifesto, George Bull, senior tax partner at Baker Tilly said:

‘The publication of Labour’s business manifesto confirms beyond doubt that the party intends to reverse the cut to the top rate of income tax, which would see rates for those earning £150,000 or more a year rise from 45% to 50%.

‘In a separate but related announcement on business funding, Mr Miliband has also signalled the party’s intention to encourage businesses to reduce their reliance on debt funding by making equity funding more attractive. This is likely to involve a system of tax reliefs known as allowances for corporate equity or ACE, which provide incentives for businesses to invest in shares. There is a precedent for this in Belgium which operates such a scheme, but the impact of such a measure could be a reduction in corporation tax yields, which could conceivably be offset by a corporation tax rate increase.

‘There may be manifesto scope for Labour to increase corporation tax rates. The party has reiterated its pledge to maintain the most competitive corporate tax rate in the G7. Currently, the G7 country outside the UK with the lowest corporation tax rate is Canada at 26.5%. This means that a Labour Government would have the flexibility to raise UK corporation tax rates by up to six and half percentage points from its current level of 20% without breaking its manifesto commitment.

‘In a nod to small businesses, Labour has also promised to cut and then freeze business rates for more than 1.5 million small business properties, instead of going ahead with another cut to corporation tax.’