The rate of corporation tax – which companies pay on their on profits – will finally be increased next month after years of Tory infighting.
Chancellor Jeremy Hunt confirmed during the Budget that the rate paid by companies that have more than £250,000 in profits will rise from 19 to 25 per cent.
The tax hike was first announced by Rishi Sunak in 2021 when he was chancellor. However former prime minister Liz Truss attempted to scrap the increase in her mini-budget last year.
Here’s what will happen to corporation tax in the UK following Wednesday’s Budget:
When does corporation tax increase?
The increase in corporation tax will come into force next month, two years after the plan was first announced by Mr Sunak.
By pushing ahead, Mr Hunt has resisted calls in his own party to lessen the tax burden on British businesses. The Chancellor has argued that major tax cuts at this time would risk destabilising the UK’s economy.
How much will corporation tax increase by?
Corporation tax will increase from 19 per cent to 25 per cent for companies with over £250,000 in profits.
The rate of corporation tax in the UK has been falling steadily since 2008, when it sat at 30 per cent, down to a current low of 19 per cent.
Delivering his Budget, Mr Hunt said the increase will only impact 10 per cent of businesses and pointed out the UK will still have the lowest rate of corporation tax in the G7.
Are there any exemptions?
In his Budget, the Chancellor also announced a new scheme that will allow every pound invested by businesses in IT equipment, plants or machinery to be deducted in full from taxable profits.
The policy, which will initially be in place for three years, will encourage businesses to bring forward investment, the Office for Budget Responsibility has said.
Mr Hunt said the new policy amounted to a corporation tax cut worth an average of £9bn a year.