Sunak raises corporate tax but exempts small businesses

Chancellor Rishi Sunak has announced that he is raising corporation tax from 19% to 25%.

In today’s budget, sunak outcorporate tax will drop to 25% from April 2023.

Given the amount of government support for businesses during the Covid-19 crisis, Sunak said it was “right and necessary” to ask them to help with the recovery.

He acknowledged that such measures “might not be popular but honest” given the state of public finances.

Even after this change, the UK will still have the lowest corporate tax rate in the G7, Sunak said.

For businesses with profits of £50,000 or less, there will be a special rate, remaining at 19%, which will cover some 1.4 million businesses.

There will also be a reduction above £50,000, so only companies with profits over £250,000 will be taxed at the 25% rate, meaning around 10% of companies will pay the highest rate. higher.

Sunak claimed that this meant that “any business in difficulty will by definition not be affected”.

An increase in the corporate tax rate to 25 percent was previously expected to increase £12 billion a year.

A planned increase of 1% is due to come into effect from the autumn of this year and will generate an additional £3bn. Sunak said the money will help repay the deficit of government programs put in placeincluding holidays, VAT reductions and other loans.

Corporation tax is paid on profits from trading activities and applies to a limited liability company or an overseas company with a branch or office in the UK.

The hike will reverse cuts previously made under former Chancellor George Osborne, which saw corporation tax cut from 28% to 19%.

In the 2020 Finance Bill, Sunak dropped a planned reduction in the corporate tax rate from 19 to 17%, which was legislated by then-Chancellor Osborne in the 2016 Finance Bill.

In an instant poll on the Money Marketing website the day before the budget, 49% of readers thought the Chancellor should raise corporation tax, while 45% thought he shouldn’t and 5% were unsure.

Furnley House IFA Paul Fazackerley says: “While not everyone supports raising the corporate tax rate, the reality is that it is the right thing to do.

“Corporation tax is a tax on profits, not on turnover, so it is only a tax on successful businesses. Businesses have received a lot of support during the last year and there have been more winners than some people might realize.

“Even after the increase, the UK tax rate cannot be considered high globally, and this change is also one of the easiest to implement, thus avoiding creating confusion or uncertainty elsewhere.

“The worst thing we could have had was more changes to pensions or savings legislation, especially with so many people having to adjust their pension plans due to the pandemic. So a tax that increases the burden on successful businesses without hurting ordinary savers or retirees makes a lot of sense. »