Chancellor Rishi Sunak could be set to raise corporation tax to help repay the government’s debt.
The news comes as a shock to worried businesses who fear that they will be the first to feel the pinch of the UK’s economic rebuild plans.
Why Increase Corporation Tax?
The move to increase corporation tax aims to bring the UK in line with the global average tax rate for businesses.
The corporation tax increase would be from 19% up to 24% and would raise £12 billion in its first year, and then up to £17 billion by 2023-24.
Rishi Sunak will be quick to explain that whilst the changes seem negative, the corporation tax rate would still be lower than other high profile European countries such as France & Spain.
It’s a move that removes a ‘global benefit’ but is still ‘way better what they have over there’.
This is why it’s considered a favourable option behind the scenes.
The Big Picture
This tax squeeze would be part of a bigger £30 billion picture that has businesses, pensions and foreign aid in its sights.
It’s estimated that a whopping £391 billion was pumped into supporting businesses and workers during the economic chaos of COVID.
This corporation tax increase would be part of the efforts to help balance the support offered out during the pandemic.
Halting Our Progress
This news has obviously riled up business leaders across the country.
With many companies facing debt and big restructuring plans, it’s safe to say that they feel like their progress is being halted.
Adding a corporation tax increase to the mix of uncertainty, they argue that it could significantly damage the economy further, for months to come.
Mike Cherry, the national chairman of the Federation of Small Businesses, said this:
“Given we’re in a recession, the last thing policymakers should be doing is hiking taxes on those who need to invest, create jobs and generate growth over the crucial months ahead.”
Further Tax Increases Expected
There are also rumours that the Treasury are seeking to increase the tax rate for company directors who pay themselves in dividends.
This figure is currently at 7.5%, compared to the basic income tax rate of 20%, but it’s expected to be significantly increased.
This would see sole traders who missed out on financial support from the government during COVID, be dealt a second blow.
Of course, none of these changes are official – and the Treasury are still in the process of deciding which steps to take next.
However, it’s worth bearing in mind that the policies that get leaked into the general public, are often the ones that are gaining the most support behind closed doors.
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