Despite some fluctuations within our government, a corporation tax rise has been on the cards for several years now in the UK. So, although some people are not on board, the confirmation of the higher rate hasn't really come as a surprise.
It's been proposed, then reversed, and then the reversal was reversed, but on 15th March 2023, Jeremy Hunt delivered a Spring statement that held confirmation that the rise from 19% to 25% will occur on 1st April 2023.
It was confirmed in the Chancellor's statement that corporation tax will rise from 19% to 25%.
The rise could be a necessary step to redress the balance between corporate profits and public spending, especially in light of the pandemic.
On the other hand, it has been argued that such a rise could have a detrimental effect on businesses and, in some instances, lead to job losses.
It is important to outline the implications and analyse how this change may affect UK businesses.
Corporation tax is a levy placed on profits earned by companies or other organisations. The UK's current rate is 19% but is set to rise to 25% in April 2023.
The 6% rise will only apply to UK companies that make a profit of more than £250,000.
Foreign companies that trade in the UK are also eligible to pay corporation tax.
The purpose of this rise is to help fund the government's extensive spending on the Covid-19 response and recovery. However, this could put pressure on larger companies to reduce their profits in order to minimise their tax bill.
The implications for businesses, both large and small, are varied. Firstly, the increase in corporation tax could lead to higher prices for goods and services, as companies may pass some of the additional costs on to consumers.
It could also put pressure on businesses to reduce their profits in order to minimise their tax bill. Furthermore, some have argued that the higher rate of tax could discourage businesses from investing in the UK and incentivise them to move elsewhere (e.g., to countries with lower corporation tax rates, such as Ireland). This makes sense, as the reason that they initially lowered the rate to 19% was to encourage investment.
However, the question is whether the increased tax rate will generate additional revenues for the government. There is no definitive answer, and opinions vary on this issue. Some argue that the increase will provide a much-needed boost for the public purse. Others worry that it may simply lead to businesses reducing their profits and passing additional costs on to consumers, resulting in no additional revenues for the government.
Ultimately, the true implications of this rise in corporation tax will depend on how it is implemented and how businesses in the UK respond to it. It is almost certain that higher taxes will have a detrimental effect on businesses, albeit to varying degrees. However, if it is closely monitored and steps are taken to limit the adverse effects, then this increased rate of tax could have a positive impact on the UK's finances and, in the long term, on businesses.
Also, it's important to remember that the higher rate of 25% will only apply to businesses with over £250k yearly profit. If you make £50k or under, the original 19% rate will still apply to you; if you make between these two figures, there will be a marginal relief rate.
If you find that you're struggling to pay your corporation tax, whether the rise applies to you or not, Love Finance can help you finance the bill.
Financing your tax bill is an efficient and easy way of paying it on time while protecting your cash flow. We can pay the bill directly to HMRC and then you pay the funds back to us in affordable monthly payments, so you don't have to dip into other funds or resources all at once. This also gives you more time to pay the bill and makes it easier to budget for the payment.
If this is something you want to look into, you can enquire with us here. Our account managers are experienced and helpful, and funding is fast and straightforward.
The Conservatives have made several adjustments to corporation tax since gaining power in 2010.
When David Cameron became prime minister in 2010, corporation tax was 28%. Chancellor Philip Hammond cut it to 19% in April 2020 to encourage investment in the UK.
Boris Johnson and Rishi Sunak proposed a corporation tax rise to occur in April 2023.
Liz Truss said she would cancel this if she won the Conservative leadership race, which Kwasi Kwarteng backed up during his mini-budget announcement in Autumn 2022. However, following the negative response to the mini-budget, this was scrapped and Truss confirmed they would honour the rise. Jeremy Hunt then confirmed this in his spring statement.
Raising corporation tax could be a risky move, but if it was to remain at 19%, taxation may have to increase elsewhere, which could have an even worse impact on individual finances. This could include raising rates of income tax, VAT, or other taxes to maintain the government's budget. Additionally, the government may be forced to reduce spending in certain areas or invest in services and infrastructure that could benefit the economy and generate more tax revenue.
Overall, the UK government's rise in corporation tax is a contentious issue. It has the potential to provide the government with additional funds that are badly needed, but this could come at a cost to businesses and the economy more generally. It is important to consider not only the short-term implications but also the long-term effects and ensure that what is proposed is fair, proportionate and in the best interests of the UK economy.
