It has been reported by several outlets – including the Financial Times and Bloomberg – that UK Chancellor of the Exchequer Rishi Sunak could be poised to raise Corporation Tax in his looming spring Budget, especially in light of new US President Joe Biden’s own planned tax increase.
The FT said British government officials had noted US Treasury Secretary Janet Yellen’s proposal to hike corporate tax rates from 21% to 28%, in a move that might provide some political cover for Mr Sunak to adopt a similar policy in the UK.
While the current Corporation Tax rate in the UK is 19%, even an increase to 25% or higher could still leave Britain’s business tax regime one of the most competitive in the G7. The equivalent rates in France, Germany, Italy, Canada and Japan, for example, are all above 25%.
The Treasury said to be looking at ways of balancing the books
With Mr Sunak reportedly on the hunt for additional tax revenue to help restore the UK’s public finances and fuel its recovery from its deepest recession since the early 18th century, the newspaper said business groups were expecting Corporation Tax to be put up, albeit perhaps not to as high as 25%.
The FT even quoted a former Conservative cabinet minister as describing a 25% rate as “a bad idea [that] would not fly with the Tory backbenches. A more modest increase is probably inevitable and probably manageable.”
Another prominent Tory, Michael Heseltine – who served as president of the Board of Trade in the 1990s – told the newspaper: “The Chancellor faces a large budget deficit and he has to tackle it. Of all the options available, increasing Corporation Tax by relatively small percentages seems to me one of the least unattractive.”
Biden justified his own intentions to put up business taxes on the grounds of budgetary prudence and fiscal equity. And with the UK Conservatives having promised in their 2019 general election manifesto not to heighten rates of income tax, VAT or National Insurance, former Office for Budget Responsibility Chairman Robert Chote has observed that “Corporation Tax is essentially the last main rate you’ve got left to do anything with.”
What do businesses make of the prospect of a Corporation Tax hike?
The FT stated in its report that business leaders had been “largely relaxed” about the notion of Corporation Tax going up. It cited one executive as saying that the tax represented “pretty safe political ground. There is not too much outrage. At least with a tax on profit, the point is there is profit to be taxed. It’s not hitting us on the way in.”
But the newspaper added that bosses’ stances would depend on the extent on any tax rises. It quoted one as commenting that “it would raise the question over our international competitiveness and about attracting inward investment, which the government seems very keen on.”
Whatever the Budget brings for your own business, it’s crucial to keep on top of your tax and accounting responsibilities. For further information and advice in relation to our low-cost bookkeeping services here at Britebooks, please enquire to our team in Plymouth or Wellington today.
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