There was some speculation as to whether the Chancellor would go ahead with the planned increase in Corporation Tax to a rate of 25%. He did indeed confirm this new rate from 1 April 2023. But let’s put this in context. A previous conservative Government reduced the rate to the current 19%, but had also promised that it would reduce further to 17%. Even worse, during the Conservative leadership race, the Chancellor himself promised to cut rates to 15%!. We understand that there are different opinions on whether a low tax economy is better than a high tax one, but for the same politician to promote a 15% rate and then apply a 25% rate, makes no sense at all.
But 25% is the headline rate. Those companies making less than £50k of taxable profits will still pay 19% and only those over £250k will pay the full rate. Those in between will pay a hybrid rate. The chancellor suggests that only 10% of companies will pay this top rate, but these 10% collectively employ millions of people and provide dividend income to millions of shareholders, so the extra 6% will have a negative impact on a large part of the economy. It does of course raise taxes to fund the Chancellor’s other plans, but there is a very clear argument that it stifles the economy when we want business focussed on growth.
The Chancellor tried to soften the blow by offering incentives for investment in technology and equipment etc, that can be fully offset against profits, but this is only really a revamp of existing rules rather than any great increase in tax allowances. Many clients often read this message wrongly and think that £100 invested in new equipment reduces the tax bill by £100. The reality is that it can be set against profits as £100 reducing the tax bill by a maximum of £25. So these businesses still need the confidence of a strong economy to make these investments, and a high corporation tax rate does make us an unattractive marketplace for many international businesses. Does the actual rate of Corporation tax impact on economic growth? Ask 2 economists and you will get 3 opinions!
What do all business really want? Stability. Whatever the tax regime, we need to be able to plan with certainty beyond the life of the Parliament and certainly more than a year until the next budget. Whether changes of leadership within Government (6 Chancellors in the last 4 years!) or changes of Government, all businesses are sick of the rollercoaster of wild swings in policy.