The chancellor, Jeremy Hunt, has confirmed that the rate of corporation tax paid on company profits will increase next month. The tax will go up from 19% to 25% for companies earning over £250,000 in profits.
Hunt also announced a new policy, “full capital expensing,” which allows businesses to deduct every pound invested in IT equipment, plants, or machinery from their taxable profits.
Hunt said that, even with the tax increase, the UK will have the lowest headline rate of corporation tax in the G7. He estimated that only 10% of businesses would pay the full rate, and his new policy was equivalent to a £9bn yearly tax cut.
During his speech in the Commons, Chancellor Jeremy Hunt confirmed that corporation tax would increase next month, rising from 19% to 25% for companies with profits over £250,000.
He also announced a new scheme called “full capital expensing”, which would allow businesses to deduct spending on investment from profits, potentially leading to a 3% increase in business investment per year. The policy would be initially in place for three years but the government aims to make it permanent “as soon as we can responsibly do so”.
Two years ago, Rishi Sunak, who was then the chancellor under Boris Johnson, proposed plans to increase corporation tax to 25% as a means of recovering public money spent to support businesses during the Covid-19 pandemic.
The policy was deferred by Mr Sunak for two years and has since been scrapped, reintroduced, and caused division within the Conservative Party. Liz Truss, who championed low-taxation during her campaign to become prime minister, had promised to keep corporation tax at 19%, but Kwasi Kwarteng confirmed the 25% hike in September 2022.
However, the Budget unravelled, and Mr Kwarteng was sacked three weeks later, with the policy being reinstated by Ms Truss as she sought to win back investors and her party’s support. Despite signing off on the policy during his time as PM, Mr Johnson and some Tory MPs oppose the rise, advocating for lower corporation tax rates.