Budget 2021: Corporation tax will bite most profitable UK companies

Chancellor Rishi Sunak’s move to raise corporation tax to 25% from 19% by 2023 has been greeted with resigned acceptance by City commentators.

“The government is providing business with over £100bn of support to get through this pandemic so it is fair and necessary to ask them to contribute to our recovery,” Sunak said.

Small businesses with profits below £50,000 a year will pay the lower rate of 19%, Sunak said, tapering up to 25% for companies with profits over £250,000 from April 2023.

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Around 10% of the UK’s companies are expected to pay the full higher rate, but “only on the larger, more profitable companies, and only in two years’ time”, he added.

City pundits said the tax hike could be painful for businesses but largely accepted it as a price to be paid for the lavish government support provided to businesses during the Covid-19 crisis.

“The prospect of higher taxes will no doubt bite for many firms that are still tending to wounded balance sheets. Delaying and tiering the corporation tax rise is a pragmatic approach, though adjustments to the plan should remain on the table as a clearer picture of the recovery emerges,” said Jonathan Geldart, director general of the Institute of Directors.

“Today was a tough day for larger businesses – with a six percentage point increase in corporation tax rate leaving them funding 60% of today’s tax increases. Whilst there was some relief on losses and today’s 19% percent rate was kept for some, these were targeted at smaller companies,” Chris Sanger, head of tax policy at audit firm EY said.

”While the corporation tax rate increase is disappointing, it was inevitable that tax rises would happen and it primarily affects groups of companies that are profitable,” said Melissa Christopher, executive director at wealth management firm Zedra.

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Vivek Paul, UK chief investment strategist at BlackRock Investment Institute said that tax increases to repair the UK’s public finances were necessary as the UK does not have much fiscal breathing space compared to other developed economies.

“Low interest rates are providing fiscal breathing room by keeping debt servicing costs low – for now. But the UK has less room for manoeuvre than other Western economies; a higher starting deficit as a share of GDP, coupled with a lower long-run sustainable deficit, due to a lower long-run trend growth rate,” he said.

Super deduction and tax loss rollback

The Chancellor also pledged extra tax support for businesses to sweeten the pill of the corporation tax increase.

The so-called super deduction allows companies to receive tax relief of up to 130% on capital expenditure on plant and machinery and 50% relief for special rate capital expenditure from 1 April to 31 March 2023.

Neil Wilson, chief market analyst at, said super deduction was “a punchy move designed to encourage spending by businesses”.

Sunak also announced the extension of loss carry back by a further two years. This means companies, partnerships and self-employed trading losses can be carried back for three years, with the total amount carried back each year £2m.

Ben Jones, a tax partner at law firm Eversheds Sutherland, welcomed the announcement.

“The extension to tax loss carry-back rules, allowing a three-year carry-back rather than the current one year carry-back, is smart policy. This will provide additional cash support to UK businesses now when they need it most, while accelerating tax collections for the UK Treasury in future years,” he said.

Covid-19 HMRC taskforce

The government is also providing £100m to HMRC to combat fraud in relation to coronavirus support programmes such as the bounce back loan scheme.

The so-called taxpayer protection taskforce will consist of 1,265 staff focused on fighting fraud among Covid-19 support schemes.

Dawn Register, head of tax dispute resolution at audit firm BDO said: “Given the speed and scale of the response to COVID-19, it is undoubtedly the case that fraud has increased. HMRC has a rich pool of data to identify suspicious claims and grants, and we expect a flood of new enquiries.”

To contact the author of this story with feedback or news, email James Booth

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