£18 billion corporation tax hike could cripple struggling UK businesses

£18 billion corporation tax hike could cripple struggling UK businesses

The UK’s business community will be under pressure to find an extra £18 billion per year of Corporation Tax payments by 2025/26 following a 31.58% proportionate increase in the Corporation Tax rate due to take effect in April.

Corporation Tax, which is currently 19%, will rise to 25% on 1 April 2023 and will raise an estimated additional £12bn in the first year, rising to £18bn by 2025/26. UK businesses currently contribute around £68bn in Corporation Tax per annum, equating to 2.9% of UK GDP.

Despite soaring prices and the challenging economic climate, the Government announced last October that it would persevere with the baseline increase on profits of more than £250,000.

This additional tax burden could lead to a significant reduction in investment and the risk of businesses closing.

It is a significant increase and some businesses may not yet be fully aware of the implications. There is concern that the scale of the tax increase along with rising interest rates and inflationary pressures will restrict inward investment opportunities and in turn growth.

The tax burden on business has become higher than we have seen in the last two decades across the board, from National Insurance Contributions (NICs) to Corporation Tax.

The greatest worry, though, is the impact on owner managed businesses who can’t invest in growing their business as they need the profits to pay the household bills.

With an increase on this scale it is more important than ever that UK SMEs actively manage their Corporation Tax liabilities. Cash and liquidity are critical for every business so we would encourage owners and directors to take full advantage of available tax reliefs, including the following:

1. Maximise the Annual Investment Allowance (AIA) of £1m
2. Claim R&D tax relief
3. Maximise pension contributions
4. Maximise staff benefits and invest in staff well-being
5. Buy electric vehicles.

We are here to help

If you have any questions on the Corporation Tax increase or utilising any of the reliefs mentioned above, please get in touch with a member of our specialist team or your usual Azets advisor.

References

UK Government CT projected receipts:

https://www.gov.uk/government/publications/corporation-tax-charge-and-rates-from-1-april-2022-and-small-profits-rate-and-marginal-relief-from-1-april-2023/corporation-tax-charge-and-rates-from-1-april-2022-and-small-profits-rate-and-marginal-relief-from-1-april-2023