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Labour’s proposals for SME’s

General Election 2019

With the upcoming election and the campaigns in full swing how much attention has been given to Labour’s proposals for SME’s?

Labour’s proposals for SME’s include:

  • Increasing dividend tax from 7.5% to 20% where the income is lower than 50k
  • Increasing Corporation tax from 19% to 21% where profits are less than 300k (the Turnover was included in the original manifesto).
  • Making Capital Gains Tax payable on the sale of your business at your marginal income tax rate. This could potentially be at least 40% as opposed to the current 10%, with the tax free amount being lowered to 1k from the current 12k

Take an SME company with a single owner who is taking a small salary and dividends to reach the basic rate threshold (50k) who is currently paying £2,662 in Income tax per annum. Then look at the same scenario under the proposed changes, the annual Income tax will increase by £4,838k.

If the same company made annual taxable profits of 80k, the Corporation tax will increase by £1,600.

This would result in an annual tax increase of more than 6k which would affect business owners earning less than the originally stated no-change 80k threshold.

If it was decided to sell the business and a figure of 200k was obtained, currently the CGT would be £18,800 but with the new proposals the CGT estimated is above 89k, resulting in an increase of 70k.

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