Rishi Sunak’s recent budget announcement means Britain’s businesses will face a corporation tax rise of 6% by 2023. The current rate of 19%, the joint-fourth lowest of any OECD economy, will rise to 25%.

As the first major business tax hike in decades, we assess what this could mean for the UK economy, and how it will affect businesses.

How Much Will the Government Make from the Rise in Taxation?

Recently analysis by the FT suggests that each percentage point increase in the corporation tax rate “would raise only £3.3bn — so even a rise of 5 percentage points would raise less than 0.8 per cent of gross domestic product in additional tax receipts.”

By this reckoning the approximate sum raised will hover around 19.8bn in extra tax revenue in 2023.

This still means the UK has the lowest rate amongst G7 countries.

Higher Taxation Won’t Assuage £2.11 trillion National Debt

Uk national debt has risen steeply following the financial crisis, with debt soaring as a percentage of GDP.

COVID 19 has hit the government coffers hard increasing public sector net debt (excluding public sector banks) by some £316.4 billion in the first 10 months of the 2021.

By January 2021 of this year, the government had borrowed £328.6 billion more than in January 2020.

The UK currently has the highest level of national debt since 1960’s, standing at £2.11 trillion.

What Will be the Impact of the Corporation Tax Rise for UK Businesses?

Chancellor Sunak reassured British businesses that because the changes won’t come in until 2023, the economy will have had a chance to turn of the corner.

He added:

And even then, because corporation tax is only charged on profits, any struggling businesses will, by definition, be unaffected.

Second, I’m protecting small businesses with profits of £50,000 or less, by creating a Small Profits Rate, maintained at the current rate of 19 percent. 

“This means around 70 percent of companies – 1.4 million businesses – will be completely unaffected.

Corporation Tax Increase Facts

  • Small Profits Rate – Sunak promised a a small profits rate for businesses with less than £50,000 profit who will continue to pay corporation tax at the current 19% rate
  • Tapered Taxation Rates – A tapered rate will also be introduced for profits above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.’
  • 30% Increase for Some Businesses – The Corporation Tax increase will mean 6p more in every £1, or an increase of over 30%
  • Superdeduction – Sunak’s concept of superdeduction means businesses will be able to reduce their tax bill by 130% if they’re investing into plants and machinery. This means that if a company invests 1 million into equipment, it can deduct 1.3 million from taxable profits.

Sources

OECD Statutory Corporate Income Tax Rates –

United Kingdom (UK) HMRC corporation tax (onshore and offshore) receipts from fiscal year 2000/01 to fiscal year 2018/19