United Kingdom

Rishi Sunak announces corporation tax will INCREASE from 19% to 25% 

Rishi Sunak today announced corporation tax will increase from 19 per cent to 25 per cent in 2023 as he said it is 'fair and necessary' to ask businesses to pay more to help the UK recover from the coronavirus crisis. 

The Chancellor stressed that the 25 per cent rate will still be the lowest of any G7 nation and will only hit firms once experts believe the economy will be back to normal. 

Meanwhile, small businesses with profits of £50,000 or less will continue to be taxed at 19 per cent, with Mr Sunak claiming protections will mean it is only the top 10 per cent of companies which will have to pay the full top rate. 

According to the Budget Red Book, it will see an extra £11.9 billion raised in 2023/24, £16.25 billion in 2024/25 and £17.2 billion in 2025/26. 

The massive hike was described by the influential Institute for Fiscal Studies think tank as 'risky' while business leaders said moving from 19 per cent to 25 per cent 'in one leap will cause a sharp intake of breath'. 

But Mr Sunak also tried to sweeten the deal for firms as he unveiled a new 'super-deduction' tax cut for businesses. 

The deduction will encourage businesses to invest in the UK by allowing them to significantly reduce their tax bill when they invest over the next two years. 

Firms will be able to reduce their tax bill by 130 per cent of the cost of the investment in a move which Mr Sunak said will boost business investment by £20billion a year.      

Chancellor Rishi Sunak today announced the corporation tax rate will increase from 19 per cent to 25 per cent in April 2023

The corporation tax hike will bring in an extra £11.9 billion in 2023/24, £16.25 billion in 2024/25 and £17.2 billion in 2025/26, according to Treasury estimates

Corporation tax receipts in 2018-19 were £55.1 billion and £63.2 billion in 2019-20.

The hike to 25 per cent will mean corporation tax returning to levels not seen in the UK since 2011.   

Announcing the corporation tax hike, Mr Sunak told the House of Commons: 'The Government is providing businesses with over £100billion of support to get through this pandemic so it is fair and necessary to ask them to contribute to our recovery. 

'So the second step I am taking today is that in 2023 the rate of corporation tax paid on company profits will increase to 25 per cent. 

'Even after this change the United Kingdom will still have the lowest corporation tax rate in the G7.' 

Mr Sunak said a series of 'crucial protections' will ensure the tax hike is applied fairly to businesses. 

He said: 'First, this new higher rate won't take effect until April 2023, well after the point that the OBR expect the economy to have recovered and even then because corporation tax is only charged on company profits, any struggling business will by definition be unaffected.

'Second, I am protecting small businesses with profits of £50,000 or less by creating a small profits rate, maintained at the current rate of 19 per cent. 

'This means around 70 per cent of companies, 1.4million businesses, will be completely unaffected. 

'And third, we will introduce a taper above £50,000 so that only businesses with profits of a quarter of a million pounds or greater will be taxed at the full 25 per cent rate. 

'That means only 10 per cent of companies will pay the full higher rate.'     

Paul Johnson, the director of the IFS, tweeted in response to the announcement: 'That's a huge increase in rate of corporation tax. Right at top end of expectations. Extraordinary reversal of longstanding policy. Risky.' 

Tony Danker, director general of the CBI, said moving the rate to 25 per cent 'in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK'. 

Stella Amiss, head of tax for regions at PwC, said: 'On the face of it he has given with one hand, by super-charging allowances for capital investment, and taken away with the other, by increasing the corporation tax rate.'

Mr Sunak appeared to try to soften corporation tax blow as he also announced the new 'super-deduction'. 

The Chancellor said the UK needed to do 'even more to encourage businesses to invest right now'. 

'Business investment creates jobs, lifts growth, spurs innovation and drives productivity,' he told MPs. 

'For decades we have lagged behind our international peers. Right now while many businesses are struggling others have been able to build up significant cash reserves. 

'We need to unlock that investment. We need an investment-led recovery. So today I can announce the super-deduction. 

Official numbers published last month showed state debt was above £2.1trillion in January

Government borrowing could be close to £400billion this financial year and is expected to stay high for years to come 

Government borrowing could be close to £400billion this financial year and is expected to stay high for years to come 

'For the next two years when companies invest they can reduce their tax bill, not just by a proportion of the cost of that investment as they do now or even by 100 per cent of that cost, the so-called full expensing that some have called for. 

'With the super-deduction they can now reduce their tax bill by 130 per cent of the cost.'

Mr Sunak gave the example of a construction firm buying £10million of new equipment. 

He said that under the current tax rules that firm could reduce their taxable income in the year they invest by just £2.6million. 

He continued: 'With the super-deduction they can now reduce it by £13million. We have never tried this before in our country, the OBR have said it will boost business investment by 10 per cent, around £20billion more per year. 

'It makes our tax regime for business investment truly world-leading, lifting us from 30th in the OECD to first and worth £25billion during the two years it is in place, this will be the biggest business tax cut in modern British history.' 

The 'super-deduction' will apply from the start of April this year. 

Adam Marshall, director general of the British Chambers of Commerce, said: 'We particularly welcome the massive "super deduction" investment incentive that the Chancellor has put in place for the next two years. This responds directly to our call to encourage those businesses that can to invest and grow. 

'While no business will relish paying higher rates of Corporation Tax in future, the impact of the Chancellor's tough decision is blunted by the big new incentives for investment, lower rates for the smallest firms, and the extension of Coronavirus support measures in the short term.'

Robert Colvile, director of the Centre for Policy Studies think tank, said 'investment incentives and other measures 'should help business and the economy rebound powerfully in the next few years'. 

But he added: 'But there is the danger of a cliff edge later on as support is withdrawn and taxes increased - or that businesses will anticipate higher taxes and fail to invest.'

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