First 100 Days of the new Labour Government

What Should Small Businesses and Taxpayers Expect?

As the first 100 days of the new Labour Government come to a close, many are reflecting on the changes that have taken place and what lies ahead for small businesses and ordinary taxpayers. While much of the media’s attention has been on how Labour plans to deal with big businesses and the wealthy, it's important to focus on what the new administration's policies mean for the everyday taxpayer, especially small business owners and common workers.

Taxation and Potential Increases

One of the biggest concerns for small businesses and common taxpayers is the potential rise in taxation. It is rumored that Labour may increase the NHS contribution for employers. This could significantly impact small business owners, especially those with limited cash flow. For a small business that operates on thin margins, an increase in employer contributions could force tough decisions—whether that means reducing staff, cutting wages, or passing costs onto customers.

While higher contributions to fund the NHS might seem fair, many small businesses are likely to feel squeezed by these additional costs. On the flip side, Labour’s promise to reinvest this funding into the NHS should ensure better public services, something that will ultimately benefit all citizens. However, the burden of financing these services appears to be disproportionately placed on small businesses, which might struggle to cope with rising costs.

Potential Reform to Income Tax Brackets

For ordinary taxpayers, Labour has hinted at restructuring income tax brackets to create a more progressive system. This is aimed at reducing the tax burden on lower-income individuals while ensuring that those with higher incomes pay their fair share. While this may seem beneficial for the working class, there are concerns about the middle-income brackets—small business owners and freelancers might see increased tax pressure if they fall into the higher income thresholds.

Labour’s plans to close tax loopholes used by the wealthy could bring in significant revenue, but for the self-employed and those running small businesses, any increase in income taxes could reduce their disposable income. It’s crucial that the government strikes the right balance so that small business owners, already dealing with higher NHS contributions and other rising costs, aren't disproportionately affected.

Digitalisation and Accounting Changes

One of the key developments under Labour is the push for further digitalisation within HMRC. This includes potential updates to the Making Tax Digital (MTD) scheme. While digitisation aims to streamline tax reporting and compliance, for many small business owners and sole traders, the transition from traditional paper-based accounting to digital systems could be both time-consuming and costly.

For those who are not tech-savvy, the prospect of having to invest in new software, undergo training, and ensure compliance with the new rules may feel overwhelming. However, the long-term benefits, such as reduced errors and simplified reporting, could eventually outweigh the initial disruption.

The Possible Rise of Employer's NHS Contribution

The rumored rise in NHS employer contributions could have a broader impact on the employment market. Small businesses may face the difficult decision of whether they can afford to continue hiring or even retain their current employees. In a climate where businesses are still recovering from the effects of the COVID-19 pandemic and grappling with inflation, additional costs could deter future growth.

Small business owners will need to assess how these new contributions fit into their financial plans. Will they need to raise prices to cover the additional expenses, or can they absorb the costs without impacting profits? The situation might also spark debates about whether such increases are sustainable in the long term, particularly for the backbone of the UK economy: its small businesses.

What Can Small Businesses Do?

As small business owners prepare for these changes, it’s crucial to stay informed about the specific tax reforms Labour plans to introduce in the coming months. Financial planning is more important than ever, with accountants advising small businesses to reassess their financial strategies and make use of any available tax reliefs.

One possible silver lining is that Labour has shown an interest in supporting small businesses through grants and other measures aimed at encouraging innovation and growth. It remains to be seen how substantial these measures will be, but it’s likely that some relief will be offered to offset the impact of rising costs.

In a Nutshell

The first 100 days of Labour governance have certainly shown the direction they want to take the country in. While there are clear efforts to modernize systems and improve public services, these changes come with challenges for small businesses and common taxpayers. Rising employer contributions, potential tax bracket adjustments, and the continued push towards digitalisation are all significant concerns for the average small business owner and everyday worker.

As the year progresses, it's essential that Labour provides clear, concise information about how they plan to help small businesses thrive under these new conditions. Ordinary taxpayers and small business owners alike must stay informed, plan ahead, and seek professional advice where needed to navigate these changes successfully.