Corporation tax will rise to 25 per cent from April 2023, chancellor Jeremey Hunt confirmed in today’s Spring Budget. However, he said “only 10 per cent of businesses will pay the full rate.”
The current 19 per cent rate will still apply if your businesses’ annual profits are at or below a new £50,000 threshold. The new 25 per cent rate applies to companies with annual profits of £250,000 or more.
Between these two rates, a system of marginal relief will apply. The 19 per cent rate applies to the first £50,000 of profits, then 26.5 per cent up to £250,000, and 25 per cent above £250,000.
Use this handy calculator to work out how much more your business will have to pay:
Why will only 10 per cent pay?
According to the chancellor, small businesses will be able to offset the impact of the tax hike with a new investment scheme, which will run for three years. However, it’s unclear how many SMEs will benefit from this measure.
Under the new Full Expensing plans, every pound a company spends on new IT equipment, machinery and research and development can immediately be deducted in full from taxable profits. Smaller businesses will also have an increased Annual Investment Allowance of up to £1 million, meaning 99 per cent of SME companies will be able to deduct the full value of all their investment from taxable profits.
“It is a corporation tax cut worth an average of £9 billion a year for every year it is in place,” Hunt said in his speech. “And its impact on our economy will be huge. The OBR says it will increase business investment by 3 per cent for every year it is in place.
“This decision makes us the only major European country with full expensing and gives us the joint most generous capital allowance regime of any advanced economy.”
The April 2023 Corporation Tax rise was originally announced by then-chancellor Rishi Sunak in 2021. However, Kwasi Kwarteng announced the measure would be scrapped in his September 2022 ‘mini budget.’ Following a negative market reaction, Liz Truss confirmed it would go ahead as planned.
Independent retailers will be disappointed that business rates weren’t included in the budget announcements. Meanwhile, there was no mention of the return of VAT-shopping.