Businesses will see corporation tax rise to levels not seen for a decade, chancellor Rishi Sunak has said.
In yesterday’s Budget (Mar 3), the chancellor announced the tax rate on profits made by businesses will increase from 19 per cent to 25 per cent, but will not be implemented until 2023.
As reported by Car Dealer yesterday, the Budget will affect small and large car dealers in a number of ways.
Corporation tax, in particular, will rise to 25 per cent but smaller businesses with profits of £50,000 or less, will continue to be taxed at 19 per cent.
According to the Budget Red Book, the raise will see an extra £11.9bn raised in 2023/24, £16.25bn in 2024/25 and £17.2bn in 2025/26.
Sunak said: ‘The government is providing businesses with over £100bn of support to get through this pandemic, so it is fair and necessary to ask them to contribute to our recovery.
‘Even after this change the UK will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France.’
This is undoubtedly a big move, designed to mobilise some of the cash reserves that lots of (less affected) firms have accrued in the pandemic
However, to offset the rises and encourage spending, a ‘super deduction’ was introduced where companies will be able to reduce tax bills by 130 per cent of business investment in machinery and equipment.
James Smith, an economist at ING Economics, said: ‘This is undoubtedly a big move, designed to mobilise some of the cash reserves that lots of (less affected) firms have accrued in the pandemic.
‘Investment is also expected to remain lower as firms grapple with new Brexit-related costs, so this move should help partially cushion the blow to the economy.’
The ‘super deduction’ will cost the Treasury £29.8bn over the course of the next five years. The amount collected in corporation tax during the same period is expected to be £47.8bn.
The rise puts the UK above the EU average of 21.7 per cent but remains below the US corporation tax level of 27 per cent, which president Joe Biden has said he is looking to increase.
End to a decade of cuts
It marks an end to a decade of cuts to the tax, leading to the current level of 19 per cent since 2017. Former chancellor George Osborne had previously said he wanted the tax to go as low as 15 per cent.
Corporation tax receipts in 2018-19 were £55.1bn, and £63.2bn in 2019-20.
The bank’s surcharge will also be reviewed because the overall tax rate would be too high, said Sunak.
At the daily government press conference later in the afternoon, Sunak defended the increase – the first such rise since 1974 bringing the tax take to levels not seen for more than 50 years – pointing out former chancellors have not faced global pandemics.
He said: ‘We haven’t had a pandemic like this in over 100 years and that’s why we’re having this conversation and that’s the problem we’re grappling with.
‘Unsurprisingly when you’ve had a shock like that and then when you’ve had a response in the likes of which we’ve done – I don’t think any other chancellors have had to do as much fiscal support for the country as I’ve had to.
‘I think it’s reasonable to expect that what we have to do in response to all of those things is a bit different to what’s happened in the past.’
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