Can Truss keep her tax cut promises as she wins the race to become PM?
Liz Truss is set to become Britain’s next prime minister, but business leaders and tax experts are wondering if she will keep her promise to cut taxes.
The new Prime Minister has promised to cut taxes for UK SMEs and said his government will ‘stop putting so much red tape, so much tax on businesses’.
As a ‘pro-business’ Prime Minister pledges to cut taxes, he claims it will cost £38billion a year, including reversing the recent National Insurance (NI) hike and scrapping a planned six percentage point rise in corporation tax for the UK’s most profitable companies. .
Commenting on Liz Truss’ victory, Adrian Young, tax partner at accountancy and business advisory firm HURST, said: ‘The new Prime Minister is going to find it much harder to keep his tax promises than to get noticed by loyal conservatives.
“The idea here, no doubt, is that it will boost investment and hopefully help retain the UK’s position as a competitive tax destination for businesses, which in turn will help tackle any post-Brexit isolation,” Young said.
“His proposals will have won him the endorsements and votes of loyal conservatives weary of Sunak’s unpopular tax and spending policies, and his promises certainly seem very generous. The reality of running the economy, and all the competing demands that that trains, will be much more difficult to manage,” he added.
IR35 report: an “empty promise”
Truss also said she would revise the IR35 tax rules for unpaid workers which came into effect in April 2021.
However, a recent Qdos survey of 476 contractors revealed that 94% of respondents think Truss’ promise to review IR35 is an “empty promise”.
“For too long, freelancers, contractors and the self-employed have been neglected by government and hit with short-sighted reforms and tax hikes that threaten this way of working,” Maley said.
“Truss said she would review the IR35 rules, which are flawed and create big problems not only for contractors but also for the companies that hire them. An independent review of IR35 that results in changes must be prioritized – c that is, if the new prime minister is serious about unleashing the full potential of the flexible workforce,” he added.
Dominic Wade, co-founder of finance and accountancy recruitment firm Wade Macdonald, added that the IR35 rules are “one of the most ill-conceived laws ever imposed on UK businesses”.
“The UK has always been famous for having a highly adaptable flexible workforce and the IR35 legislation has significantly hindered this,” Wade said.
“If it’s important that we all contribute a fair share of taxes, does it matter whether it’s through income tax or a combination of corporation tax and dividend tax? Additionally, shifting responsibility to the fee payer (often a recruiting firm or alternatively the end client) is grossly unfair and diminishes companies’ willingness to utilize top flexible talent,” Wade added.
Glenn Collins, acting director of the Association of Chartered Certified Accountants (ACCA), called on the new Prime Minister to make tax simplification a “key priority”.
“While tax cuts can provide much-needed relief to mitigate the crippling cost increases felt by small businesses, this must be balanced against the need for continued investment needed to provide effective government infrastructure, such as HMRC service standards,” Collins said.
“This, in turn, will restore much-needed confidence to government and business through tax and audit reforms.
“The intense cost pressures facing businesses mean that cash management is crucial. Calling on the forecasting skills of financial advisors will be an important way for SMEs to weather the economic storm,” he added.
Roan Lavery, co-founder and CEO of FreeAgent, also urged the new Prime Minister to support SMEs to help the UK economy recover from its impending recession.
“SMEs are the backbone of the economy. Due to their nimble and innovative nature, they are also likely to be the companies that will bring the UK economy back to prosperity. But to do that, they need the right support, including better access to finance that can get them through these tough times,” Lavery said.
“The more we can help small businesses now, the more they will be able to drive the UK’s recovery in the future,” he added.
Truss won the Conservative leadership race with 81,326 votes, overtaking Rushi Sunak by more than 20,000 votes.