Budget 2021: Corporate tax soars to 25% in Sunak’s budget speech

Although he stressed it was still the lowest rate in the G7, the increase from the current level of 19% was likely to anger big business.

The measure will raise around £50billion by 2026 in additional taxes, with massive sums towards the end of parliament. In 2024 and 2025 alone, it will raise £16 billion and £17 billion respectively.

However, it also gives a large sum of money to companies in the manufacturing sector through tax incentives to invest in factories and machinery.

This so-called ‘super deduction’ will be a tax giveaway of around £30bn by 2025-6.

It will come in the form of a tax incentive for companies investing in machinery, meaning that for every pound invested, taxes will be reduced by up to 25p.

Stephen Phipson, chief executive of manufacturers’ trade body Make UK, said: “Today’s announcement should help boost investment and provide a foundation that will support government and industry’s efforts to achieve net zero and position the UK as a leader in digital manufacturing.

He warned, however, that the rise in corporation tax would disrupt businesses struggling with the impact of Covid on their businesses.

PWC tax partner Alex Henderson said: ‘These are really big numbers and they show the Chancellor’s clear intent; it imposes a large increase in taxes but also encourages business investment in the manufacturing sector and not in the service sector.

The service sector accounts for around 70% of the UK economy, but helping manufacturers should play well in the Tories’ new Red Wall constituencies.

Sunak pointed out that the new rate would not be introduced until 2023 “well after the time when the OBR (Office for Budget Responsibility) expects the economy to have recovered.

“And even then, given that corporation tax is only levied on profits, any struggling business will, by definition, not be affected.”

The Chancellor said companies making profits of £50,000 or less would still only have to pay 19% under what he called a small profit rate.

This means around 70% of businesses – 1.4 million businesses – will not be affected, he said.

There had been speculation of a 25% corporation tax, but most thought it would be 22-23% instead.

Sunak said: “So, yes, it is a corporate income tax increase, but only for the biggest and most profitable companies, and only in two years.

“I wanted to announce it now because I think, for businesses, certainty matters.”