Businesses will face higher tax bills from 2023 under plans announced by the Chancellor of the Exchequer Rushi Sunak in his Budget statement on Wednesday.
Corporation tax will rise from its present 19% to 25% with effect from April 2023. The increase was expected and would still leave the UK having a lower corporation tax rate than other G7 countries.
But the Chancellor also announced a new Small Profits Rate starting at 19% for businesses whose profits fall between £50,000 and £250,000. This meant, Mr Sunak said, that only 10% of companies would pay the full 25% and 70% of companies would be unaffected by the increase in corporation tax.
Mr Sunak said the measure was necessary to help tackle the huge debt the Government has built up through supporting households and businesses during the pandemic. Borrowing is expected to reach a peacetime record of £355bn this year, and £234bn in 2021-22.
The Chancellor said it would be the work of many governments to bring the debt down to manageable levels, but the measures in his Budget would be a start. He announced an increase in personal tax thresholds to £12,570 and £50,270 for higher rate taxpayers in the next financial year, but said they would then be frozen till 2026.
Mr Sunak confirmed the extension of the furlough scheme till the end of September, but added that businesses will be expected to start contributing to the scheme from July. Support for the self-employed will also continue till end of September, and more people will have access to the scheme.
The National Living Wage will rise to £8.91 per hour, and there will be increased incentive payments for companies taking on apprentices. Other business support announced includes a new Restart grant for businesses in the retail and hospitality sectors, and a new Recovery Loan scheme guaranteed by the Government.
A new ‘Super Deduction’ will allow companies that invest over the next two years to reduce their tax bills by 130% of the size of the investment.
The 5% VAT rate for hospitality and tourism businesses will be extended until the end of September, after which an interim 12.5% rate will take effect until April 2022. The Chancellor also announced a mortgage guarantee scheme which will make it easier for first-time buyers by guaranteeing 95% loan-to-value mortgages.
The Chancellor devoted a large part of his statement to what he called measures to promote green growth, improve productivity, create jobs and change the economic geography of the UK. These include a new UK infrastructure bank based in Leeds, a new green savings bond, and a new monetary policy remit for the Bank of England reflecting the transition to a net zero economy.
Other UK-wide schemes announced include a new Help to Grow scheme geared towards management training and executive development, and Help to Grow Digital which will provide free training in digital skills for businesses. Mr Sunak also announced a consultation on R&D tax relief, visa reforms for highly skilled migrants, and more flexibility for pension funds to invest in high growth businesses.
For Wales, Mr Sunak confirmed the investments in the Holyhead Hydrogen Hub and the Global Centre of Rail Excellence in Neath Port Talbot, and the accelerated funding for the Swansea Bay City Deal and Mid Wales and North Wales Growth Deals.
He also announced a £740m increase in Barnett formula funding for Wales, as a consequence of increased spending on devolved matters in England. It is up to the Welsh Government to decide how it spends the extra money.
The Secretary of State for Wales Simon Hart said:
“The continuation of furlough, self-employed and business support, the Universal Credit uplift, the hospitality VAT cut and the fuel duty freeze will provide vital certainty for people and businesses in Wales in the months ahead, while the announcements of the Centre of Rail Excellence, hydrogen hub and investment in growth deals will bring thousands of high-skilled jobs, signalling Wales’ place as a centre for innovation and the industries of the future.”
The Office for Budget Responsibility is forecasting 4% growth in the UK economy this year, and 7.3% next year.