UK Corporate Tax Changes

8 April 2021

Rishi Sunak, chancellor of the exchequer, UK, has announced the first corporation tax rise in 47 years for the country, but sought to soften the blow with £25bn in investment incentives for British businesses.

Corporation tax, the tax businesses pay on their profits, will rise to 25% for company profits over £250,000 from April 2023, the chancellor told parliament in a recent budget review.

The tax increase will bring in £17.2bn by 2025-26, the Treasury said. This is the biggest single tax rise in the revised budget.

Businesses who have profits less that £50,000 will continue to pay the current corporation tax rate of 19%, although the rate will be tapered up for businesses as they get closer to the £250,000 profit level. This rise is the first corporation tax change since 1974 under Denis Healey, a Labour chancellor. The announcement was unexpected due to the conservative’s strong connections to big businesses. “Moving corporation tax to 25 per cent in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK,” said Tony Danker

The chancellor also announced that companies could apply losses of up to £2m incurred over the next two years against tax previously paid. Tax experts said this was designed to boost cash resources. This will assist businesses greatly, especially those who have been negatively affected by business closures due to the pandemic and the UKs prolonged lockdowns.

Sunak also announced a new two-year tax “super deduction” for businesses who invest in a new plant or machinery, in an attempt to improve the UK’s historically weak productivity growth. Companies will receive a tax cut worth 130% of investments made between 1 April 2021 and 31 March 2023, meaning the government will effectively pay for companies to invest their capital. The deduction will be worth £25bn over two years to businesses.

This is a great opportunity for those who want to branch into the UK, or who already are established in the UK and want to invest further into a new plant and machinery. The UK offers a stable, prestigious location to start a new business and despite the corporation tax rise, new business will still benefit from being based in the jurisdiction.

If a company in the UK does not seem like a current viable option to increase company growth and profits, expanding a company into different jurisdictions may well provide a beneficial option.

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