LONDON: Britain will raise corporation tax to 25 percent from 19 percent from 2023 to help pay for the cost of the COVID crisis but tempered the tax rise with a “super deduction” to spur investment, finance minister Rishi Sunak said on Wednesday.
“The government is providing businesses with over £100 billion ($139.2 billion) of support to get through this pandemic so it is fair and necessary to ask them to contribute to our recovery,” Sunak told parliament.
“Even after this change, the United Kingdom will still have the lowest corporation tax rate in the G7,” Sunak said.
Sunak said he would encourage businesses to invest their cash reserves with a so-called “super deduction” to reduce their tax bill by 130 percent of the cost.
He said that under existing rules, a construction firm buying £10 million of new equipment could reduce their taxable income in the year they invest by £2.6 million but with the "super deduction" they could reduce it by £13 million.
“We’ve never tried this before in our country,” Sunak said.
Sunak quoted the Office for Budget Responsibility as saying it would boost investment by 10 percent; around £20 billion higher per year.
“It makes our tax regime for business investment truly world-leading, lifting us from 30th in the OECD, to 1st,” he said.
“This will be the biggest business tax cut in modern British history.”
The UK introduced corporation tax at a rate of 40 percent in 1965. It rose to a high of 52 percent in the 1970s.
In the 1980s, the main rate was cut to 35 percent under Margaret Thatcher, then during the 1990s from 35 percent to 30 percent and eventually to 20 percent.
The rate was cut to 19 percent from 2017 and was supposed to be reduced further to 18 percent and then 17 percent but has been held at 19 percent.
Sunak said small businesses with profits of less than £50,000 a year would be charged only 19 percent - so around 70 percent of businesses would be unaffected.
He also said the government would taper in the tax on profits above £50,000 so that only businesses with profits of £250,000 or more - around 10 percent of companies - would be taxed at the full 25 percent rate.