UK to increase corporation tax to 25% in first rise since 1970s

LONDON — Britain will raise its corporation tax on big companies to 25% from 19% from 2023, the first hike in nearly half a century, but will temper the burden with a two-year “super deduction” for investment to spur a fast recovery from the COVID-19 crisis.

Finance minister Rishi Sunak, a Conservative unveiling the first corporation tax rise since Labor raised it in 1974, said the future tax hikes on companies were a fair way to start recouping the cost of vast state support to business during the pandemic.

“The government is providing businesses with over £100 billion of support to get through this pandemic so it is fair and necessary to ask them to contribute to our recovery,” Mr. Sunak told parliament.

“Even after this change, the United Kingdom will still have the lowest corporation tax rate in the G7,” Mr. Sunak said.

The corporation tax rise — by far the biggest tax increase announced by Mr. Sunak in the budget — will take effect from 2023, when the economy is expected to regain its pre-pandemic size.

The measure is forecast to raise 11.9 billion pounds in the 2023-2024 tax year, rising to £17.2 billion in 2025-26.

In the meantime, Mr. Sunak announced a measure to encourage businesses to invest their cash reserves in new machinery and plants, with a so-called “super deduction” that let businesses reduce their tax bills by 130% of the cost of investments. The measure is forecast to give businesses back around £12.3 billion this coming year and £12.7 billion in the next.

Still, the Confederation of British Industry, the lobby group for big British companies, said the hike in corporation tax was sending a worrying signal to investors.

The United Kingdom (UK) introduced corporation tax at a rate of 40% in 1965. It rose to a high of 52% in the early 1970s and has been cut ever since. It was trimmed to 19% from 2017 and plans to cut it further were scrapped. —