Corporation tax to rise to 25 per cent

Corporation tax on company profits is to rise from 19 per cent to 25 per cent in 2023, the Chancellor, Rishi Sunak, has announced in his Budget.

Sunak set out the plans on 3 March, saying the government must start to repair the public finances after spending more than £400 billion to support the economy through the coronavirus pandemic.

The tax rise

The increase will apply to companies with profits of more than £250,000. Smaller firms with profits below £50,000 will continue to pay 19 per cent.

It is the first rise in corporation tax since 1974. Sunak said that even at 25 per cent, Britain's rate would be the lowest in the G7 group of leading economies.

Frozen thresholds

Sunak also announced that the thresholds at which people start paying income tax and the higher rate would be frozen from April 2022 until 2026. As wages rise, more people will be drawn into paying tax, or into higher rates.

More support

The furlough scheme, which pays up to 80 per cent of the wages of workers who cannot work, will be extended until the end of September. Support for the self-employed will also continue.

The £20 a week increase in universal credit will continue for six months.

Businesses will be able to reduce their tax bills by 130 per cent of what they invest in new equipment over the next two years, a policy known as the super-deduction, designed to encourage investment.

The cut in VAT for the hospitality and tourism industries will be extended, and the stamp duty holiday on home purchases will continue until June.

The economy

The Office for Budget Responsibility expects the economy to recover to its pre-pandemic size by the middle of next year, sooner than previously forecast, thanks to the rapid rollout of vaccines.

Government borrowing is running at its highest level since the Second World War.

Reaction

Business groups warned that the tax rise could discourage investment, although they welcomed the super-deduction. Labour said the government should not raise taxes while the recovery was fragile, and criticised the freeze in thresholds.

Freeports

Sunak also named eight freeports in England, special zones with lower taxes and customs rules, including one at East Midlands Airport.