For the past 40 years or so, Corporation Tax rates have decreased steadily around the world. In 1980, the global average stood at around 40%, but by the end of 2020 it was closer to 24% as various countries aimed to encourage business investment.
Here in the UK, we’ve seen the main rate of corporation tax cut from 28% in 2010 to its current rate of 19%. Plans were originally in place to reduce it even further to 17% in 2020, but those were cancelled at the end of 2019.
Following the COVID-19 pandemic, as governments around the world look to cover the costs they’ve incurred, company tax rates could now be about to go in the opposite direction.
In Spring Budget 2021, Chancellor Rishi Sunak announced that the UK’s main rate would increase to 25% from April 2023, at the same time as a separate small-profits rate of 19% will be introduced. As Sunak presented it, this increase will act as some kind of trade-off for the financial support given to businesses during the COVID-19 pandemic.
In his words, UK businesses have received more than £100 billion in Government support, so it is “fair and necessary to ask them to contribute to our recovery”. Some company owner-directors, whose dividend payments were not eligible for any form of compensation under COVID-19 support schemes, might disagree with that sentiment.
But the reality is that the Chancellor’s options for covering pandemic-related costs were limited by the Conservative Party’s manifesto promises not to raise income tax, National Insurance or VAT rates.
And while costs might increase for companies in some circumstances, those that make eligible investments could benefit from significant additional tax relief as part of economic recovery measures.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.