Following their victory in the 2024 UK election, the new government have to begin to deliver on their manifesto promises and overcome the challenges facing them.

With a firm focus on growth, business owners now await more details from the Prime Minister and his newly formed cabinet about how they will support growth and UK business. In this blog, I’ll look at the manifesto pledges and what the new government will mean for businesses.

Business taxation

Corporation tax

The new Labour government plans to cap corporation tax at 25% for the entire parliamentary term. This aims to give businesses more stability and predictability to help them in long-term planning and investment decisions.

However, Corporation Tax has always been a headline grabber in the Budget or Autumn Statement announcements of the past, so we may see changes to Corporation Tax rates in future.

Capital investments

The government have said that it plans to keep the full-expensing Capital Allowances as well as the Annual Investment Allowance (AIA). They also aim to make the rules clearer so that businesses have greater clarity on qualifying expenses.

The government has pledged £7.3bn in funding for a National Wealth Fund to attract private investment into UK infrastructure.

Research & Development (R&D) & innovation

The Labour party proposed significant changes to the current system of tax credits for R&D in their pre-election pledges. They said they would reshape the landscape of innovation and scientific progress in the UK.

The party said that R&D tax credits will remain stable, and that Patent Box will be maintained, which for many businesses will be good news after recent changes made by the previous Government to the R&D scheme.

It seems the new Labour government will be taking a long-term approach for key R&D organisations in a range of sectors such as automotive, aerospace, defence, energy, AI and life sciences. This approach is aimed at fostering longer term economic growth and innovation.

Indirect tax

VAT

Labour have pledged not to change the main rate of VAT.

However, their plan to impose VAT on private school fees has already caused much controversy and comment. So far, Labour has not confirmed exactly how or when VAT will be applied to private school’s fees. Full details are likely be announced in the new government’s first budget, which is expected to be in the autumn. Labour had previously said that this new measure will not be introduced until at least 2025. VAT will not be applied retrospectively.

There is concern that this change may see some smaller private schools close, and that the policy may mean inadvertently applying VAT to private nurseries or after-school clubs.

VAT law is complicated, particularly once you start to consider and set exemptions. Previous governments have seen this when trying to exempt various categories from VAT.

It is clear there is still work to do in this area to ensure that exemptions are clearly defined in law or statutory guidance. Creating this clear definition before implementation is complicated and will undoubtedly take time.

Personal taxation

Tax bands and allowances

Whilst the new Labour government have promised no increases to income tax rates, they have also stated that they will not increase tax thresholds and current thresholds will remain in place until 2028, creating fiscal drag for taxpayers. This means many people will be paying more tax in coming years as they find themselves moving into a higher tax bracket as their salaries rise.

National Insurance Contributions (NIC) and pensions

The Labour manifesto did not propose any changes to employers’ NIC or the pensions auto-enrolment obligations of employers.

Capital Gains Tax (CGT)

Whilst the Labour Party made no specific mention of Capital Gains Tax (CGT), their manifesto pledged to increase investment and history shows that CGT has been a key lever in promoting investment and growth.

The market is already seeing investors selling assets such as shares and property amid fears that the new government may increase CGT. Although investments held in pensions and ISA tax wrappers will not be affected by changes in CGT.

During the election campaign, Sir Keir Starmer ruled out the introduction of paying CGT on the disposal of your main home, but he has never ruled out the prospect of increases to CGT, creating much commentary and speculation.

There is no doubt that CGT will be on the radar of the new government as an option to raise more tax revenue in future, so business owners and investors need to be aware and prepared for this.

Non-domicile

The previous Conservative government had already proposed substantially reducing the perceived benefits of the UK’s tax regime for non-UK domiciled individuals. The Labour manifesto confirms that it plans to reform of the UK’s non-domiciled rules, but there are no specifics on how they would do this.

Labour supported many aspects of the original non-dom proposals, but they would make some changes. It is clear they will need to strike the balance between taxing non-doms, whilst not deterring those people who would help drive investment and growth in the UK.

If the new government are to honour the original April 2025 implementation date set by the Conservatives, they will need to provide consultation papers and their plans in the next couple of months.

Inheritance tax and Business Relief

There is much speculation that the new government is drawing up tax raising options and that this will include significant changes to IHT. In the Labour manifesto, there were promises to end the use of offshore trusts to avoid inheritance tax.

One of the main areas of concern for business owners is the suggestion that the government will scrap or change the rules for Business Relief. Business Relief (BR). BR is a valuable relief from Inheritance Tax (IHT) for many business owners. It reduces IHT charges arising on the transfer of qualifying business interests during a person’s lifetime or on their death. In many circumstances it can mean that a business can be passed on free of IHT. Similar changes could also be brought in on Agricultural Relief.

Even though there is much speculation around IHT, it is important that business owners do not rush into decisions and take advice before making decisions.

Other potential changes

Pensions

Ahead of launching its manifesto, Labour announced that it would drop plans to reintroduce the lifetime allowance (the cap on how much people are allowed to save into their pensions before paying tax).

However, Rachel Reeves has campaigned to reduce tax relief for pension contributions for high earners, by introducing a flat rate of relief at 33%. Under the current rules, individuals can contribute up to £60,000 a year to their pension and can also use any unused element of this annual allowance for the prior three tax years.

Business owners should consider topping up pension contributions ahead of any possible changes.

Employees & employment law

The new government have pledged to remove age bands relating to the National Minimum Wage, so there will be only one NMW rate in future. They have also stated that they would look at the remit of the Low Pay Commission to ensure the minimum wage is a genuine living wage. This would see some businesses facing higher wage bills in future.

The government says it intends to give workers more rights from their first day in a job and will ban the practice of “fire and rehire” and the use of “exploitative” zero-hour contracts by employers.

There are also proposals to ban employers who break employment laws from hiring foreign workers.

The government are also set to introduce workforce and training plans to end the long-term reliance on overseas workers in sectors such as health and construction.

There was a pledge to transform the apprenticeship levy, but it is likely that this will be a longer term project.

Business owners will need to keep up to date with what may be significant and wide-ranging changes to employment laws and rules.

Business rates

The Labour government has promised to overhaul the business rates system to create a more level playing field between smaller high street retailers and big online giants. However, the party hasn’t been specific on what will replace the current business rates system.

Late payments

Labour said it would stamp out the late payment of invoices by creating new legislation forcing large businesses to reveal their payment practices in an attempt to expose late payers.

Planning

The plans contained in Labour’s manifesto on planning were detailed, showing that planning is high on the government’s agenda.

Overall, the government has pledged to speed up development by removing red tape and update national planning policy.

This includes promises around local housing targets, green belt rules relaxing, new towns, housebuilding targets, infrastructure project. All of these plans will mean more homes and potentially more jobs and opportunities for businesses operating in the construction sector.

Support for startups and small businesses

The government wants to make it easier for small businesses to access funding and investment. This will involve the British Business Bank having a stronger mandate for investing in small businesses.

There may also be changes to the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) to help early-stage businesses.

Labour plan to also create a ‘Scale-Up Taskforce’ to improve policies that are currently barriers to business growth.

Summary

There are many areas that business owners need to stay aware of as the government aim to encourage investment, support growth, close the tax gap and reduce the burden on working people.

Whilst a new government often means some uncertainty for business owners, it is likely that the first Budget in the autumn will set out key financial and tax changes for 2025 that will offer further clarity on some of the key areas.

Time will tell if manifesto pledges are delivered in the next few years.

Keep in touch with your professional advisors and be prepared to make changes both from a business and personal perspective as the tax and business landscape changes.

For more help and advice through this period of change, contact Barnes Roffe now.

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