In the UK, the corporation tax rate is set to increase from 19% to 25% in 2023. This represents a significant increase in the tax burden on businesses and has generated controversy and debate among economists, politicians, and business leaders.

While the increase in corporation tax is intended to raise revenue for the government and support public services, it is also likely to have significant implications for businesses operating in the UK.

Why is corporation tax increasing?

The increase in corporation tax is part of a broader package of measures aimed at restoring public finances following the economic disruption caused by the COVID-19 pandemic.

The government estimates that the increase in corporation tax will raise £17 billion a year by 2025, which will be used to fund public services such as health, education, and infrastructure.

The government has also introduced several other measures to support businesses, including a new super-deduction for capital investment and a temporary extension of the carry-back of trading losses.

Could this have negative implications for the UK?

While the increase in corporation tax is intended to raise revenue for the government, it is also likely to have implications for businesses operating in the UK.

One of the main concerns is that the increase in corporation tax will reduce the competitiveness of UK businesses compared to their international counterparts. The UK currently has one of the lowest corporation tax rates in the G7, and the increase to 25% will put the UK closer to the average rate of 26.5%. This could make the UK a less attractive destination for foreign investment and could encourage businesses to relocate to other countries with lower tax rates.

Another concern is that the increase in corporation tax will reduce business investment and innovation. Higher corporation tax rates mean that businesses have less money to reinvest in their operations, which could slow down investment in new technologies and research and development. This could have long-term implications for the UK’s competitiveness and economic growth.

Could the tax rises be a positive thing?

Despite these concerns, there are also arguments in favour of the increase in corporation tax.

One argument is that the increase is necessary to support public services and address the inequalities and challenges faced by society. The government has highlighted the importance of investing in education, health, and infrastructure to support economic growth and create opportunities for all.

Another argument is that the increase in corporation tax will encourage businesses to adopt more sustainable and responsible practices.

By increasing the tax burden on businesses, the government is incentivising them to focus on long-term sustainability and responsible business practices. This could include investments in renewable energy, reducing carbon emissions, and promoting diversity and inclusion.

Summary

In conclusion, the increase in corporation tax in the UK is a controversial issue that has generated debate and discussion. While the increase is intended to raise revenue for the government and support public services, it is also likely to have implications for businesses operating in the UK.

The increase could reduce the competitiveness of UK businesses and discourage investment and innovation. However, there are also arguments in favour of the increase, including the need to support public services and encourage responsible business practices.

Ultimately, the impact of the increase in corporation tax will depend on how it is implemented and the broader economic and political context in which it takes place.

Contact us if you have any concerns about the upcoming rise in corporation tax or wish to discuss your options.