finance

UK businesses face ‘week of woe’ as corporation tax rise hits


UK companies are about to be hit with an extra £9bn a year of taxes at the same time as most face reduced government subsidies on their energy bills, in what is being called a “week of woe” by business groups.

The main rate of corporation tax will rise from 19 per cent to 25 per cent from April, raising about £18bn a year for the Treasury, but that will be partially offset by a 100 per cent tax break on capital spending designed to boost investment.

The so-called full expensing tax measure announced in the March Budget is worth about £9bn annually, leaving businesses about £9bn a year, or £750mn a month, worse off.

Tim Sarson, head of tax policy at KPMG, said the “starkest effect” will be felt by those businesses taking the full 6 percentage point tax increase without being able to benefit from full expensing of capital expenditure.

He added parts of the services sector would be among the hardest hit as they do not need to invest as heavily in plant and machinery.

Businesses will also face a sharp cut in government support for energy bills from April 1, while the living wage is set to rise by 9.7 per cent.

The Federation of Small Businesses said companies would be £12.5bn worse off after the reduction in help for energy bills as the cost of the scheme to the taxpayer will drop to £5.5bn over 12 months versus £18bn over the last half year.

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Many smaller businesses will also suffer a cut to research and development tax reliefs from April, while they become more generous for bigger companies. The net effect of these changes is expected to remove about £215mn in support in the new tax year.

“Sadly, the Conservative party is about to plunge the UK’s small businesses into a week of woe. Tax up, energy bills up, employment costs up, inflation up — but the government is oblivious and now running out of road to make a difference,” said. Craig Beaumont, chief of external affairs at the FSB

Other business leaders were also critical of the government for hiking corporation tax.

Lord Karan Bilimoria, founder of Cobra Beer and a former president of the CBI, said it was “absolutely the wrong move” and was “backward, retrograde, [and] will damage investment”.

He added it was “shortsighted in trying to pocket £18bn a year, when actually it is killing the goose that lays the golden egg”. 

Lord Michael Spencer, founder of interdealer broker ICAP and a Tory party donor, said: “The UK should maintain corporation tax at no higher than 20 per cent to put us in the most competitive bracket globally.

“The UK is simply not an attractive enough place to invest with a corporation tax at 25 per cent.”

Penny Simmons, legal director at law firm Pinsent Masons, said the corporation tax rise was “going to hit big businesses hard”.

Tim Stovold, head of tax at accountants Moore Kingston Smith, said businesses with profits between £50,000 and £250,000 would be hit by a marginal 26.5 per cent corporation tax rate due to the tapering of relief between those bands. “Most are not expecting this; it will come as a shock.”

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Companies with profits under £50,000 will continue to pay 19 per cent corporation tax with the main rate applying to all profits over £250,000.

The Confederation of British Metalforming warned that hundreds of smaller manufacturers could be forced to close with the cut in support for energy bills.

“The government is sleepwalking into an industrial disaster, it’s that simple,” said chief executive Stephen Morley.

“You have well-run firms who have seen energy bills rise from £600,000 per year to £4.2mn and from £4.3mn to nearly £6.8mn. How can you expect them to absorb those and still survive or remain competitive?”

The government said various measures it had announced, such as the full expensing tax break and business rates relief, would help boost investment and spur growth.

“We are determined to make the UK the best place in the world to do business, which is why from today businesses can start to benefit from the raft of tax cuts on offer to boost their growth,” said Victoria Atkins, financial secretary to the Treasury.



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