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Sunak eyes corporation tax hike in March Budget

Chancellor Rishi Sunak is said to be considering plans to increase corporation tax in his 3 March Budget, much to the dismay of cash-strapped businesses still struggling from the coronavirus economic fallout.

20th Jan 2021
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The Chancellor Rishi Sunak makes final preparations to his first Budget speech
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The Budget is still six weeks away but rumours are already swirling about what the Chancellor has in store to help balance the books as part of the coronavirus economic recovery. In what can be seen as a kite flying exercise in The Times this week, the Chancellor has apparently circled corporation tax as one of the few “genuine revenue raisers”.

Hamstrung by Boris Johnson’s manifesto commitment to freeze the rates of NIC, VAT and income tax, Sunak now sees some wiggle room with corporation tax as a source to pay off the estimated £400bn coronavirus deficit.

The rate of corporation tax currently stands at 19%, but there was previously commitments outlined in the 2016 Budget to reduce the rate to 17% from April 2020. These plans were scrapped as the cut was considered too costly and unnecessary. The mulled over plans would reverse the trajectory set by George Osborne when he cut the rate from 28%.

Sunak's plans reportedly hinge on the vaccine rollout going as expected, which would open the door for the possibility of tax rises in the Budget. According to The Times, the Treasury has council tax and stamp duty on the chopping block, with a 'proportional property tax' lined up as its replacement. 

Sunak’s proposed plans have already found an unlikely supporter in accountant and tax justice campaigner Richard Murphy. Writing on his Tax Research blog, Murphy said he supported the idea of a corporation tax increase because companies are already heavily under taxed in the UK.

“Large UK companies pay less than the OECD average rate, by some way. Small companies pay at a rate below the standard income tax rate, which is a simple invitation to abuse. And no company makes payment in that case to society for the moral hazard that they create within it as a consequence of the limited liability their members enjoy.”

He added that an increase would be fair because “companies who made a loss during the pandemic would not pay it. Only those who gained would do so.”

Business rejects proposed tax rise

But despite the £3.4bn a percentage point increase would raise for the Treasury, Sunak’s plans are already coming up against opposition from ministers and the business community.

Ed Molyneux CEO and co-founder FreeAgent said: “If there has to be a future tax rise, I would prefer to see this introduced for larger, stable companies that are capable of contributing, rather than smaller, more vulnerable businesses.”

Molyneux said the government should “think carefully about how best to protect small businesses as we approach the March Budget”. He added that their “priority should be helping small businesses as that is arguably a more important issue for getting through this pandemic”.

Meanwhile, Mark Littlewood, the director general at the Institute of Economic Affairs, called a hike in corporation tax as “one of the most inefficient ways of raising government revenue”.

“After spending billions supporting businesses over the course of the pandemic, punishing them now with a tax hike would be illogical and counterproductive,” he said.

Businesses need more support

The Confederation of British Industry’s (CBI) Tony Danker is instead calling on the government to instead focus on more support for businesses having to make “tough decisions” on jobs or whether to carry on.

Danker is urging the government to take action before the Budget and extend the furlough scheme until June, lengthen repayment periods for VAT deferrals also until June and extend the business rates holiday for at least another three months.

“The rule of thumb must be that business support remains in parallel to restrictions and that those measures do not come to a sudden stop, but tail off over time.”

Do you think the Chancellor will increase corporation tax on the 3 March Budget? Do you think we're due a rise in corporation tax?

Replies (13)

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By Justin Bryant
21st Jan 2021 09:39

Not to mention what a double whammy this would be for all those PSC taxpayers who missed out on the SEISS etc.

Also, it's hardly likely SDLT will be abolished just before the new non-UK resident SDLT surcharge kicks in on 1.4.21. That would not be a good look would it?

Abolishing council tax for a new (sensibly operated) property value tax is the only sensible suggestion here.

As for RM, not even Jeremy Corbyn paid any attention to what he had to say, which tells you everything.

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Replying to Justin Bryant:
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By Marlinman
22nd Jan 2021 05:24

Personally I'm against all property taxes. Taxes should be based on ability to pay and not the value of a property you bought many years ago when your circumstances were different and the increase in value isn't your fault. Blame the banks for cutting interest rates.

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By AndyC555
21st Jan 2021 08:06

"Sunak’s proposed plans have already found an unlikely supporter in accountant and tax justice campaigner Richard Murphy. Writing on his Tax Research blog, Murphy said he supported the idea of a corporation tax increase because...."

Why should that be considered unlikely?

Because....he supports tax rises in general. On evil nasty tax evading neoliberals.

"the moral hazard that they create within it as a consequence of the limited liability their members enjoy." Says the man who operates through LLPs and Limited Liability companies himself. Obviously it's everyone else who is a "moral hazard" and not the virtuous Mr Murphy.

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By Richard Grant
21st Jan 2021 08:40

Just a thought, maybe opening up the economy again might be a start instead of sticking the boot into what's left of it.
Sushi's forecasting seems to be as bad as SAGE's, why not kill a goat and read its entrails? It worked for the Romans and it's probably as accurate as anything going on in the Treasury at the moment.

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Replying to Richard Grant:
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By AnnAccountant
21st Jan 2021 11:41

Interesting that you seem to associate Rishi with killing goats and reading their entrails. You also seem to have blended his name to associate him with sushi.

Maybe people have a point when they talk about subconscious bias and racism?

People's beliefs tend to come out in their words or actions eventually - however well they think they have managed to hide them.

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Replying to AnnAccountant:
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By AndyC555
21st Jan 2021 13:38

From my reading of the post, Richard Grant associated the Romans with goat entrails. I'm fairly sure that's the case because he said "it worked for the Romans".

But if you look hard enough, you can see racism wherever you look for it.

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By Richard Grant
21st Jan 2021 18:25

Thank you Andy.

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Replying to AnnAccountant:
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By LukeS
21st Jan 2021 14:29

What on earth..............?????

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Replying to AnnAccountant:
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By Richard Grant
21st Jan 2021 18:07

Really? Are you trying to imply I'm racist? If so you are an incredibly sad individual but don't let that stop you trolling.

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By Richard Grant
21st Jan 2021 10:26

.

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By ireallyshouldknowthisbut
21st Jan 2021 11:57

Meh, only profitable business pay tax so those getting kicked by Covid and bashed up hard by Brexit are not going worry too much about another few % on top of profits they are no longer making.

Even if it was back at 30%, it would make little difference to activity in that you don't work less hard due to your tax bill going up a bit. That said virtually all of my ltd co clients would become sole traders overnight if there is less tax to pay.

Business that can/do offshore their profits for a 5% or 10% rate will offshore then at 19% or 30%, those that cant will suck it up.

I note they seemed to have dropped all this out of context Laffer curve stuff that Boris was babbling on about when he wanted to get elected. Maybe someone pointed out the revenue declines don't kick in until you get to a tax rate well over 50%..

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Replying to ireallyshouldknowthisbut:
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By AndyC555
21st Jan 2021 13:45

"revenue declines don't kick in until you get to a tax rate well over 50%.."

Well, we're pretty much there already aren't we?

£1,000 profit less £1,900 CT less £3,086.10 income tax on a £8,100 dividend paid to an additional rate taxpayer means 49.861% of company profits goes in tax. Worse if it's paid by way of salary.

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By drakeltd
21st Jan 2021 15:41

Is increasing taxes the solution? Or is it part of the issue?

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