Business bears brunt of Corona

As corporation tax leaps to 25% in first rise for 47 years...

Britain’S businesses will bear much of the burden for paying for coronavirus as rishi Sunak increased corporation tax for the first time in almost 50 years.

The Chancellor said the tax rate on company profits will increase from 19 per cent to 25 per cent in 2023, a bigger and faster jump than expected.

The rise is so large it almost mirrors Jeremy Corbyn’s pledge to put it up to 26 per cent in his hard-Left 2019 manifesto.

The increase is the first since Labour’s Denis Healey put up corporation tax in his 1974 Budget – two years before he was forced to go cap in hand to the IMF.

The Treasury said the huge hike will raise £17.2billion by 2025/26, when receipts are expected to be the highest as a share of GDP since the height of the nigel Lawson boom in 1989/90.Mr Sunak said: ‘The Government is providing businesses with over £100billion of support to get through this pandemic, so it is fair and necessary to ask them to contribute to our recovery.

‘Even after this change the UK will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France.’

The rise puts the UK above the EU average of 21.7 per cent but remains below the US corporation tax level of 27 per cent, which President Joe Biden has said he is looking to increase. France’s rate is 26.5 per cent, Germany’s is 30 per cent, Canada’s 26.5 per cent, Japan’s 30.62 per cent and Italy’s 24 per cent, according to data from KPMG. The huge rise is only 1 percentage point less than that promised by Mr Corbyn two years ago. At the time the Tories condemned the policy, saying it would make the country uncompetitive. They also pointed out at the time that, according to Treasury analysis, 5 per cent of the burden could be passed on to consumers through higher prices in shops and supermarkets.

It is not clear how well the rise will go down with Tory MPs, some of whom had indicated they could rebel on the issue.

Mr Sunak said that to offset the corporation tax rises and encourage spending, a ‘super deduction’ will be introduced whereby companies will be able to reduce tax bills by 130 per cent of business investment in machinery and equipment. Last night, Paul Johnson, director of the Institute for Fiscal Studies think-tank, said: ‘That’s a huge increase in [the] rate of corporation tax. right at [the] top end of expectations. Extraordinary reversal of longstanding policy. risky.’

Chris Sanger, head of tax policy at accounting and consulting giant EY, said: ‘In a move that went further than many expected, the Chancellor today set the UK’s corporation tax rate back a decade, with the rise in 2023 to 25 per cent falling between the 2011 rate of 26 per cent and 2012 rate of 24 per cent.

‘This firmly abandons the aspiration of former Chancellors, going back to George Osborne, of having the lowest rate in the G20 in favour of the far less competitive challenge of the best in the G7.’

Stella Amiss, head of tax regions at PwC, added: ‘It will be important to ensure that much of the good work on progressing the levelling up agenda is not at risk of being undone by the significant hike in the headline corporation tax rate which, on its own, will do little to encourage inbound investment and could hinder the creation of opportunity.’ The ‘super deduction’ will cost the Treasury £ 25billion over its two- year lifespan. Corporation tax is expected to earn the Treasury £47.8billion in the next five years.

Mr Sunak added: ‘I’m protecting small businesses with profits of £50,000 or less by creating a small profits rate, maintained at the current rate of 19 per cent.

‘This means around 70 per cent of companies – 1.4million businesses – will be completely unaffected.’ A taper is also introduced so only businesses making profits above £250,000 will be taxed at the 25 per cent rate – affecting only around 10 per cent of all companies.

He added: ‘For the next two years, I’m also making the tax treatment of losses significantly more generous by allowing businesses to carry back losses for three years providing a significant cash flow benefit.’

Tony Danker, director-general of the Confederation of British Industry, said the Budget ‘succeeds strongly in protecting the economy and kickstarting recovery’. But he added: ‘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.’

Former Brexit secretary David Davis said it would be ‘crippling’ to pay off the £14,000 per household deficit through raising taxes.

He said the Government should instead reduce the deficit and sovereign debt through growth and increased employment.

‘Hinder the creation of opportunity’