Lib Dems consider corporation tax overhaul in manifesto

Corporation tax would be restored to 20% under a Liberal Democrat government, as the party considers shifting from a profits tax to a turnover- or sales-based model, its manifesto reveals

Currently set at 19% and set to fall to 17% under the Conservative government’s existing plans, corporation tax is only charged on company profits. That model has proven increasingly difficult to enforce in the modern era, with multinationals channelling profits offshore to low-tax jurisdictions or driving margins down through heavy capital expenditure.

As a result, corporation tax has historically been a relatively minor portion of the ultimate tax take, contributing approximately 6% of the overall national income, equating to around £42.7bn, according to a November 2016 report by the Institute for Fiscal Studies (IFS). By way of comparison, income tax generates 25.4% of the total receipts, with £182.1bn.

Among the party’s other pledges on tax is a 1p rise for all income tax bands, along with dividends, a policy it claims will generate approximately £6bn to spend on the NHS. That said, the Treasury has been historically against hypothecated taxes – earmarking tax collected for specific purposes.

It also plans to raise the employee national insurance threshold to the income tax threshold in a bid to simplify the system. Aligning the two has long been mooted by many in the tax profession.

The party also proposed to plough cash into the health service through the development of a dedicated health and care tax, ‘possibly based on a reform of national insurance contributions’.

On VAT, the Lib Dems plan to generate an extra £1bn by legalising and regulating cannabis.

In all, the party says it would raise £15.9bn, through, among other policies, abolishing the marriage allowance, the £1m inheritance tax threshold and reversing capital gains tax cuts.

It also says it will set a target for HMRC to reduce tax avoidance activity and allocate extra resources for it to do so.

The Liberal Democrats' manifesto can be read here.

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Tax companies on turnover? Do they understand how businesses work? Still, it helps narrow down the choice of who to vote for.

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