UK to raise corporation tax to 25% in first hike since 1970s

LONDON (Reuters) – Britain will raise its corporation tax on large businesses to 25% from 19% from 2023, the first rise in nearly half a century, but will ease the burden with a “super two-year deduction” for investments to stimulate a rapid recovery from the COVID-19 crisis.

Britain’s Chancellor of the Exchequer Rishi Sunak holds the budget box outside his office at 11 Downing Street in London, Britain March 3, 2021. REUTERS/Toby Melville

Finance Minister Rishi Sunak, a Tory who unveiled the first corporate tax hike since Labor raised it in 1974, said future corporate tax hikes were a fair way to start recouping the cost of the state’s extensive support for businesses during the pandemic.

“The government is providing businesses with over £100bn of support to get through this pandemic, so it’s right and necessary to ask them to help with our recovery,” Sunak told parliament.

“Even after this change, the UK will still have the lowest corporate tax rate in the G7,” Sunak said.

The corporate tax hike – by far the largest tax increase announced by Sunak in the budget – will take effect from 2023, when the economy is expected to return to its pre-pandemic size.

The measure is expected to increase by £11.9 billion in the 2023-24 tax year, to reach £17.2 billion in 2025-26.

Meanwhile, Sunak announced a measure to encourage companies to invest their cash reserves in new machinery and factories, with a so-called “super deduction” that allows companies to reduce their tax bills by 130% of the cost of investments. The measure is expected to give businesses around £12.3 billion back next year and £12.7 billion the following year.

Still, the Confederation of British Industry, Britain’s big business lobby group, said the rise in corporation tax sent a worrying signal to investors.

‘Moving corporation tax to 25% in one fell swoop will be a big breather for many businesses and send a worrying signal to those considering investing in the UK,’ the CBI chief executive said. , Tony Danker.


The UK introduced corporation tax at a rate of 40% in 1965. It peaked at 52% in the early 1970s and has been reduced since. It was reduced to 19% from 2017 and plans to reduce it further have been abandoned.

Law firm Clifford Chance said the rise in corporation tax – which in Britain is particularly wide with fewer deductions than elsewhere – would make the effective rate higher than in Germany or the states States and at the level of France.

Britain would overtake Sweden, Denmark, Israel, Ireland and Portugal in corporation tax revenue as a share of national income.

Sunak said small businesses with profits of less than £50,000 a year would only be charged 19%, meaning around 70% of businesses would not be affected, and a decrease would mean only those whose profits over £250,000 – around 10% of businesses – would be taxed at the full rate of 25%.

The super deduction, Sunak said, would allow a construction company to cut its tax bills by £13million if it bought £10million of new equipment. He quoted the Office for Budget Responsibility which said it would increase investment by 10%.

Martin Sorrell, executive chairman of advertising group S4 Capital and former CEO of WPP, said Sunak could have delayed the hike longer, but it was softened by the small business relief, the super deduction and others. measures.

“Overall, I think it was okay,” he said, adding that the super deduction would unlock the investment. “Consumers are a bit of a coil spring right now and so are businesses; companies have preserved their resources in COVID.

Reporting by Guy Faulconbridge; Editing by Estelle Shirbon and Hugh Lawson

Luisa D. Fuller